EDIT: Found a tweet that basically says the same thing I say in this post but better:
Hi, I saw a discord post that really interested me regarding the implementation of the AMPL aTokens. It looks like the plan is to make it so that only the unborrowed portion of AMPL tokens rebases, while the borrowed portion remains fixed. I’d like to point out that this creates an opportunity for arbitrage that is extremely damaging for AMPL lenders, and diminishes the ability for AMPL lenders to benefit from rebases when it is beneficial for them. Let me point this out with an example:
There are only two participants in the AAVE AMPL market: Alice the lender and Bob the borrower.
Scenario A:
Alice deposits 1000 AMPL into AAVE at $1.
It is approaching the time of the rebase and the price of AMPL has jumped up to $1.05.
Bob borrows all 1000 AMPL and waits for the rebase. His AMPL balance increases from the rebase, giving him approximately 1050 AMPL.
Bob returns his 1000 AMPL debt plus a marginal amount of interest, profiting 50 AMPL.
Alice is left with 1000 AMPL at $1 plus a marginal amount of interest.
Scenario B:
Alice deposits 1000 AMPL into AAVE at $1.
It is approaching the time of the rebase and the price of AMPL has dropped to $0.95.
Bob simply doesn’t borrow any AMPL since he knows the rebase will effectively increase his debt if he borrows. If he was already borrowing, he has an opportunity to profit by returning it and borrowing it again after the rebase.
Alice is left with 950 AMPL at $1 and no interest.
Note: I know the math and parameters aren’t completely right and there’s smoothing, but the overall concept should make sense here.
I know this behavior is intentional, but I’m of the opinion that the damage to lenders can end up being quite severe. I think the borrowed balances need to rebase along with the tokens to maintain a healthy lending market, which I am well aware goes completely against what you want this AAVE listing to accomplish. This aToken implementation may end up having AMPL lenders inheriting all of the negative effects of volatility and unable to benefit from positive movements, leaving lenders ultimately as bagholders which may strike many lenders by surprise, as this is really just an obscure math issue.