Raise Maximum Interest Rate on AMPL Market
01Summary
Proposal to increase AMPL's maximum borrow interest rate to 10,002% APY (from current cap) by adjusting the interest rate model parameters to better balance incentives between borrowers and depositors, addressing near 100% utilization rates on AAVE v2.
- Type
- parameter change
Key changes
- Raise maximum borrow interest rate to 10,002% APY by setting Slope2 to 10,000%(high)
- Set optimal utilization rate to 75%(high)
- Set Slope1 (interest rate increase below optimal utilization) to 2%(medium)
- Base variable borrow rate remains at 0% APY(low)
Notable concerns
- Extremely high maximum borrow rate of 10,002% may create unusual market dynamics
- Proposal is coupled with suggested separate reserve factor reduction (20% to 10%) that requires additional governance vote
- AMPL spot market described as in 'relatively extreme condition' suggesting market instability
- Near 100% utilization suggests current interest rate model fundamentally misaligned with market needs
Generated by Kvorum
02Description
Simple Summary
This proposes raising the maximum AMPL interest rate to better balance incentives between the borrow and deposit sides of the market.
Motivation
Following API-12, AMPL borrowing & depositing went live on the AAVE v2 market [date=2021-07-24 time=20:22:00 timezone="UTC"].
Since then, there has been a near 100% utilization rate of deposited assets. This suggests the maximum cap of the interest rate curve is not able to reach a high enough value to effectively balance incentives between the borrow side and depositing side of the marketplace.
While the AMPL spot market is currently in a relatively extreme condition, the AAVE borrowing market should be able to perform efficiently in all market scenarios.
Specification
We suggest the following parameters for AAVE's default interest rate model:
- Optimal utilization = 75%
- Slope1 = 2%
- Slope2 = 10,000%
This leads to a piecewise linear curve with two parts and three defining points:
- Borrow Interest(0) = 0% APY
- Borrow Interest(75) = 2% APY
- Borrow Interest(100) = 10002 % APY
Rationale
A higher cap of the borrow interest rate will allow the marketplace to have a more sustainable equilibrium.
Since this will result in overall higher fees coming into the system, in tandem we also suggest lowering the reserve factor from 20% to 10% to incentivize more depositors. This would be submitted as a separate AIP to decouple these two decisions.
We believe a nonlinear interest curve is healthiest long-term and could likely be used by many other assets as well, however this work can be discussed more in the future.
Implementation
A deployment of the existing implementation of the Interest Strategy will be used, with the following parameters:
optimalUtilizationRate: new BigNumber(0.75).multipliedBy(oneRay).toFixed(),
baseVariableBorrowRate: new BigNumber(0).multipliedBy(oneRay).toFixed(),
variableRateSlope1: new BigNumber(0.02).multipliedBy(oneRay).toFixed(),
variableRateSlope2: new BigNumber(100).multipliedBy(oneRay).toFixed(),
https://etherscan.io/address/0x509859687725398587147Dd7A2c88d7316f92b02#readContract
Copyright
Copyright and related rights waived via CC0.
03Mismatch analysis
A calldata-vs-description analysis is not generated yet. Review the decoded actions →
04Actions
- Target
- 0xba4b…0362
- Value
- 0 wei
- Function
- fallback()
- Arguments
{}- Calldata
05Tally
Summed from votes
06Voters
No votes recorded yet.
07Forum
- Proposal: add support for AMPL ↗discourse · high confidence
Arguments for
- AMPL's rebasing, non-dilutive, algorithmically stable-target design provides a novel uncorrelated collateral and debt-denomination asset that differs meaningfully from stablecoins reliant on centralized/fiat backing.— AMPL_Kirby, BNM, kbambridge, marzipanstar, brandon
- AMPL 'borrows like a stablecoin but holds like a non-collateralized asset', enabling unique trading strategies such as leveraged positions, rebase arbitrage, and interest-bearing AMPL.— brandon, yawobeng, MRSpock, cloudedlogic, kbambridge
- Listing AMPL would deepen liquidity, drive new traffic and users to Aave, and strengthen a partnership with a large, active, and technically engaged Ampleforth community.— Jag, asimoes, ScottS, damien, chainone
- The Ampleforth team has done substantial technical due diligence, including a custom aToken implementation, Chainlink price feeds, audits (Peckshield), and a bug bounty, showing readiness for safe integration.— brandon, Emilio, cloudedlogic
- Third-party teams (Protofire, Atomica) offered to build liquidation-protection/backstop infrastructure specifically to mitigate AMPL collateral risk, potentially justifying a higher LTV.— margaret_protofire, Elena.Atomica, Elena.Atomica.org
- AMPL's low correlation to other crypto assets (supported by Gauntlet analysis) makes it a useful diversifying collateral option that could reduce systemic liquidation risk.— kbambridge, brandon, GOATY
- Reducing DeFi's reliance on centralized, fiat-backed stablecoins with a censorship-resistant, algorithmic alternative is a valuable step forward for the ecosystem.— BNM, kbambridge, marzipanstar, cloudedlogic
Arguments against
- AMPL is highly centralized, with team/seed holders controlling a very large share of supply, creating risk of insider manipulation, especially combined with leverage on exchanges like FTX.— Coinninlingus
- The aToken design where only unborrowed AMPL rebases (not borrowed balances) creates an arbitrage dynamic that systematically transfers value from lenders to borrowers, especially harmful during positive rebases.— pakim249
- Supporting AMPL on Aave V1 is technically difficult since aTokens aren't upgradeable, requiring significant custom engineering and pushing the integration to V2.— Emilio
- Borrowers face uncertain long-term repayment risk if AMPL's market cap and rebase-driven supply grow dramatically over time, complicating debt planning.— refri
- Some thread contributions were low-substance hype rather than rigorous analysis, raising concern about the quality of governance discussion.— tonezone
Unresolved concerns
- Once live, the AMPL pool suffered from severe liquidity problems, trapping unsophisticated lenders who couldn't withdraw despite high APY, raising ethical and reputational concerns for Aave.— Stoto, ethereumin
- The rebase-driven arbitrage dynamic (only unborrowed AMPL rebases) could leave lenders as unwitting 'bagholders' absorbing negative rebases while missing positive ones.— pakim249
- How exactly liquidation risk would be managed under volatile rebase conditions, and whether proposed backstop/insurance mechanisms (Protofire/Atomica) would actually be implemented, was left open.— margaret_protofire, Elena.Atomica
- Concerns about AMPL's concentrated token ownership and potential for manipulation were disputed but never conclusively resolved.— Coinninlingus, damien
- Confusion among community members about how borrowing, lending, and rebase mechanics interact in practice was only partially clarified through back-and-forth examples.— refri, kbambridge
Notable participants
- brandonAmpleforth co-founder who authored the proposal and provided ongoing technical and governance updates through to on-chain submission.
- EmilioAave-side contributor who flagged technical constraints (V1 vs V2) and tracked progress of the AIP.
- kbambridgeFrequent, detailed advocate who explained AMPL's rebase mechanics and addressed community questions about loan behavior.
- pakim249Raised a significant technical objection about arbitrage risk to lenders from the aToken rebase design.
- margaret_protofireProposed a liquidation-protection service to mitigate AMPL collateral risk on behalf of Protofire.
- CoinninlingusRaised centralization and manipulation concerns about AMPL token distribution, sparking pushback.
- refriAsked clarifying questions about rebase/loan mechanics, helping surface community confusion.
- cloudedlogicProduced explanatory content and repeatedly advocated for the proposal, also pushed back against criticism of thread quality.
- tonezoneCriticized the thread for being hype-driven rather than substantive.
- StotoReported real-world post-launch liquidity problems affecting lenders, raising reputational concerns.
Generated by Kvorum
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