ARC: Raise AMPL's max interest rate

Risk Liquidity
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There has been an aAMPL/AMPL liquidity pool set up, so ampl lenders should now be able to access liquidity that way, no matter the utilization rate. We can expect that 1 aAMPL will be worth slightly less than 1 AMPL while util is at 100% though.

While I understand that many lenders who were not aware of how the aAMPL market acts are frustrated, I am against raising the ampl interest rate drastically. I think a better solution would simply be a disclaimer on the Aave frontend letting users know how the Ampl market acts differently than other markets.

Increasing ampl’s max interest rate would cause the interest rate to fluctuate dramatically due to the way Aave calculates interest. This would cause the market to be quite unstable, and unpredictable. A different way of calculating interest, (perhaps a curve function rather than linear interest) would be necessary to make higher interest rates work properly.

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45

I don’t agree with the new proposal to raise the interest rate to 20% per day. This proposal seems to be coming from a sense of urgency, while in my view there is no urgency here. In the last 2 weeks, AMPL had a late catch up to his May 2021 market cap. Within this 400% market cap increase holders, borrowers, lenders and Aave made money.

First of all, we should let the expansion cycle finish. Then we should observe how the lending market reacts in the neutral zone. Do we have a mass exodus (90%) of liquidity or do lenders stay in the pool ? We don’t know, let’s wait and see.

I agree with you that the situation is not yet ideal for lenders. And there needs to be some adjustments to tip the balance more in their favour. I am thinking of 2 changes:

  • On Aave side, slightly increase interest rate from 1.8% to somewhere between 2% and 2.5% daily.
  • On Ampl side, we should really explore making rebase more aggressive. Why not reduce the supply smoothing factor from 10 days to 7 days ? This would make it harder to maintain prices over 1.50$ over many days.
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Hello) Guys, maybe it would be honestly and effectively to change the accrual mechanism of stkAave distribution? Ampl asset is giving max profit to aave protocol even with so low liquidity, and still lenders don’t get any stkAave, it is not fair actually. Maybe stkAave distribution should be based not on provided liquidity, but on gains that asset is providing to aave protocol? And stkAave token APR should be scalable, and depending mostly how much profit asset is generating for aave protocol. What do you think about this? Cause lenders right now are in loosing territory, don’t have rebase, can’t withdrawal, and even don’t get any profit from aave protocol as stkAave rewards

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47

This was indeed a whale “escaping” the lending pool. He made a bunch of small transfers from aampl to ampl, and after each one he provided more liquidity to the pool. I believe he did this to increase depth of the pool and decrease price impact from each of his sells. After doing this 10-20 times he withdrew all liquidity. In net, he converted a few hundred grand from aample to ampl at a discount, then withdrew all liquidity.

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You’ll have to take my word for it, but I was speaking with that particular user. What you’re missing is that he’s borrowing the AMPL he deposited into AAVE, with the mooniswap pool providing a way to wind this tighter with the same funds. He isn’t representative of someone who deposited AMPL without knowing what they were doing and selling out of this position at a loss.

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It would be win win situation as for lenders and borrowers from Ampl, and same for Aave protocol. Imagine 100-200+mlns of ampl liquidity at 90-100% utilisation rate. It would generate 90-95% of all aave protocol profits. And it can be achieved by giving lenders of Ampl % of stkAave, depending of % of profit that Ampl is giving to Aave protocol

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50

I am strongly against this proposal to raise the fees.

186k% is a lot. Upping this to 250k% or more doesn’t solve the issue, it just makes the % calculations and certainty past 80% even less predictable.

I would like infact like to see LESS fees to make it even MORE PREDICTABLE.

Right now we have people jump in without understanding the economics, just brand new to ampl, which of course is good, but it’s for the wrong reasons, just purely to profit without really knowing what they are doing. Increasing the fee to 250k% for example would just make this worse by attracting more actors who don’t know/care what ampl is or why this is happening - which is fine in the short term, but not if they all get rekt when this doesn’t magically happen forever.

Imo LESS fees make this MORE guaranteed and more certain.

Certainty is a feature of ampl already in another way - with the known rebase time daily, of which the rate is more certain closer and closer to the time, it creates arb and trade around it and actors know exactly what to expect.

As a trader, I don’t want that the fee can vary from 100k% to 250k% or more with just a small change in utilisation. I LIKE that it is almost “locked” at max rate during a strong expansive period. I know where the arb is, where the market is, where the trade is and can act with certainty. I say this as someone who is minimally acting but this is legitimately what traders, ARBers, market makers need.

However, I believe this isn’t a situation which is permanent, this is just an expansive phase, and this is just what happens when ampl expands now - it wont be forever, it might be 1-3 weeks, but as the market grows, simply imagine when ampl is a $2bn market cap, and has a 2% rebase, that is an extra $40m mcap / supply being created- this is a LOT, at higher market caps ampl will slow down and not extend to such crazy price levels - this gap we have at the minute is just a feature of a smaller market cap market and is a one of expansion phase that shouldnt be over policed or added 2-3x higher fees on the Aave market for perhaps 2-10 days then to need to adjust them back to sensible/normal levels again.

  • I STRONGLY oppose increasing the fee:

  • It makes ampl less predictable for traders, arbers, all actors.

  • Turns it into more of a degen economic game and attracts the “wrong” type of audience - imagine if we increased to 1MILLLION% max and how much misinformation and hype chasers we would experience.

    • now we have the mooniswap aampl-ampl market so now anyone can get out at any time - which is just 5% under value currently - literally showcasing that those who felt “trapped” are out now, and the rest are happy with their risk and profit and trade setup and claims of people being “rekt, only earning 186k%” are greatly exaggerated or this would be a larger than 5% gap.

  • The amount of historical rebase days we have at higher levels, say over $1.40, has been minimal. Ampl mostly does swing NEAR it’s target, a wide $1.80 price level is rare, and has already seemed to have calmed to a “more reasonable” $1.40-1.50 level now. To introduce a doubling/change of fee to cater for an instance which is pretty rare, especially because if ampl really does calm down and stop hitting outlier price targets then it makes the fees just TOO unpredictable - going from 95% to 100% utilisation may change the fee from 200k to 1million% for instance (guessing/simple high numbers)

  • Furthermore there is an Ampleforth AIP proposal which is seemingly popular to change the economic rebase rules on Ampl core so that it swings even more aggressively closer to it’s target - AIP-5 Discussion: Sigmoid Rebase Function ¡ Issue #16 ¡ ampleforth/AIPs ¡ GitHub - this really should mean that ampl finds it much harder to swing too far from it’s $ price target and it can grow without needing to be high in $ price.

  • 186k% is the 2nd highest “semi sustainable” apy anywhere, EVER, even in DeFi. 2nd only to “rebase”.

  • 186k% is enough.

Again, simply at $1bn or $2bn, at larger marketcaps the expansion phases wont be so extreme in $ price of ampl, or so long drawn out. At $1bn mcap a 2% rebase for 2 days adds $40m+ onto the market cap in 2 days. At larger market caps ampl wont aggressively expand by 4-7% for multiple days or weeks on end.

I know those proposing changes are smarter than me and have great intentions to make a fair and balanced market and importantly let people in and out , but it does feel like it’s addressing a feature not a problem (now that the mooniswap pool is there especially with minimal usage in day 2 now), and more of a one time thing that only happens at a smaller market cap as ampl gains awareness to a larger market of it’s uniqueness, of it’s fit within defi, of it’s unstoppable, unregulatable nature - that it is a unique unit of account. This gets priced in once, in a large upswing in market cap growth - which we are seeing now. This problem ceases to exist at $2-10bn market cap and should not be MADE WORSE by increasing a fee which would only be useful for a very short time period while being counter productive and adding in uncertainty over longer periods.

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51

Great post Dan, and I’d just like to add another point that was alluded to but not discussed in detail:

The phase in the price cycle in which lenders are outcompeting alternate strategies the most is when positive rebase does not exceed interest rates at 100% utilisation, yet the pool is nevertheless at or near 100% utilisation because borrowers are feeling like it’s worth taking a chance that the price will enter that upper region of significant positive rebase. As such, the greater the timeframe in which these conditions exist, the better a lending strategy will fare.

As the interest level is pushed higher, this shifts the minimum price before which borrowers can justify borrowing in the hopes of rampant positive rebase higher. However AMPL’s price doesn’t have uniform distribution around its target, the more extreme prices are vastly less likely to occur than the interim prices. You drastically narrow the timeframe in which there will be borrower speculation when you increase the interest rate.

Okay, fine, so that just suppresses borrower activity, no big deal right? Not so. Suppose the borrow profitability threshold was +5% rebase after increasing the maximum interest. That doesn’t mean there won’t be any borrowers at lower positive rebases, it just means borrowers will collectively stay below the elbow in the utilisation curve. Lenders will miss about 75% of that +5% rebase whilst earning ~2% APY for it instead. This is significantly worse than missing 100% of that +5% but earning ~2% daily instead.

High interest rates also makes it more risky for borrowers to take out longer term loans whilst outside periods of positive rebasing, since if the price were to spike they could find themselves suddenly increasing in debt at an even more absurd rate. I think the current rate already disincentives a certain style of borrowing to an extent, but raising the rate even higher would completely squash it. This is not a good outcome either.

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He may have started by borrowing his own ampl, but unless I misunderstand, the net result of these moves is that he is now borrowing the liquidity providers ampl.

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He’ll now be effectively borrowing from people who sold him AMPL for his aAMPL yes, but I don’t see how that really negates the point I’m making.

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Raising interest is sound policy for an “asset” that seeks to become “Stable” Ampl deserves expansion, Lenders should once again not suffer the brunt of it(Thinking of IL for the early geysers, very similar situation here), keep the daily generated interest ceiling 2-1.5% lower then the positive re-base %. That way borrowers can still ARB at a reasonable rate in expansion cycles and lenders can ride expansion cycles north of 1.8% daily.

Dictate a clause for expansion cycles being multiple days of High 95% or more utilization and positive re-bases before that change ticks on.

Simple truth of finance is at work here, The Lending asset needs to operate Identically to the borrowed asset, anything else is ponzi

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Which of course only makes sense for assets that behave like other assets (i.e. non-rebasing assets), which AMPL is not, and thus, this “truth” cannot be applied to it.

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What would that change if there was a higher interest rate? this situation cannot be solved with the maximum interest rate. Big picture is It works with the amount of total circulation supply and the market pricing this supply. We need to think about this in terms of both lenders and borrowers. because later maybe we as borrowers will want less max interest rate according to total supply and price conditon. At the moment everything is going well according to the financial rules.

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Going well for Borrowers/Holders of AMPL, aAMPL lenders are being diluted heavily

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So Fiat is unaffected by Inflation/Deflation? We can’t use Fiat to lend?

What was AMPL trying to be again?

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Of course. More fees get negative result for borrowers when rebase go down. They back AMPL And lenders can access to his liquidity. If APY not go up this pool is broken.

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Ampl lending isn’t supposed to allow the lender to keep full exposure to volatility. It’s impossible to have stable debt denomination while keeping full exposure to volatility for the lender.

Rebasing assets act in a fundamentally different way than fixed supply assets. We shouldn’t be trying to make rebasing assets lend like fixed supply assets, that’s like trying to cram a square peg into a round hole.

Lenders need to know that lending ampl has different risks than lending fixed supply tokens.

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61

Are aAMPL holders protected from negative rebase %? Honest question, The AAVE AMPL caveat page does not seem to indicate that Lenders are exempt from negative rebase cycles. If aAMPL acts as a hedge during negative rebase that could be interesting.

Rebases are not magic, Inflation and Deflation exists, Renumeration of Fiat exists. There IS something called a money supply even if the FRED no longer reports on it.

What Incentive is there to lend AMPL on AAVE past a 1.26 per token? Lenders do need to be aware of Trapped Liquidity, the inability to swap/withdraw while utilization is near 100%

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They are excluded from the rebase, positive and negative, in accordance with the utilisation of the lending pool. If the pool is at 75% utilisation, the lenders experience 25% of the rebase. It’s easiest to think about this in terms of where the AMPL is at any given time - whoever’s holding it, gets the rebase on it.

People are often quick to assume that utilisation would be 0% during negative rebase but we have historically seen that to not be the case.

Lending is primarily a long term hands off strategy. If you were actively managing your position it would be more effective to exit a lending position during times of massive growth, but if you’re taking a more passive approach then lending continues through the ups and the downs and it’s the overall result that’s important.

Absolutely agree that awareness should be emphasised, both of the nature of how lending AMPL works, and also of the Mooniswap pool which allows lenders to exit their position even when utilisation is at 100% (https://mooniswap.info/pair/0xce4cf5dca6aee3b48b28a846b6253533e6790129)

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As a long-time hodler of AMPL and geyser participant, I certainly wouldn’t mind if a potential aAMPL/AMPL geyser pool even gave a bit of a premium over other geysers. Incentivizing lending through the geyser heavier than other geysers will serve to increase the overall size of the AMPL reserve, bring more attention to the pool and project by better balancing the utilization during expansions. The pool pair also potentially adds another layer of utility even, and gives lenders a “special benefit” to offset the “special cost” of lending.

We might even make such a geyser reward participants by the length of time (in hours or something) they have lent consecutively such that there’s a ramp in reward; if you’ve been “stuck” lending in a big expansion cycle for 2 weeks, it might be reasonable that they get a better geyser rate than one who just entered.

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