Currently, DeFi lending platforms like Aave and Compound offer lending and borrowing of fixed supply assets like $WBTC or inflatable assets like $DAI or $USDC, but no one has introduced elastic supply assets like $AMPL… except for Yield Credit that has just launched.
In this article, I'll cover $AMPL lending and borrowing use cases that fit both platforms: Yield Credit and Aave, where I believe that $AMPL listing is around the corner.
Brief on $AMPL Characteristics
Ampleforth’s $AMPL token is the pioneer of elastic supply tokens that converts price-volatility into supply-volatility. Its protocol automatically adjusts the $AMPL supply each day according to demand in the marketplace through a rebasing mechanism that targets the price of the 2019 US Dollar ($1.027). This helps to stabilize the price per $AMPL by around $1.02.
When a rebase occurs, the supply of AMPL automatically and proportionally increases or decreases across all user wallets in response to demand. However, your percent ownership of the network always remains fixed even though your $AMPL balance changes frequently. Therefore, $AMPL is non-dilutive like Bitcoin, but unlike Bitcoin, it has a long-term unit of account (the price of the 2019 US Dollar) that unlocks safe denomination of debt.
Other key characteristics of $AMPL are; it’s decentralized, censorship-resistant, free from monetary inflation, and non-collateralized – making it a low-correlated collateral asset that’s resistant to black swan price shocks.
Benefits of $AMPL Lending and Borrowing
The Elastic Finance Stack with $AMPL at the base and Lending in the middle (Source)
The benefits for lending and borrowing $AMPL stretch far and wide. But if I were to break it down to just two, it would be that $AMPL enables borrowers and lenders to take advantage of safe debt-denomination and collateral diversification.
Let’s dive into these points here:
Safe Debt-Denomination
The vast majority of borrowed assets in DeFi are stablecoins because they provide safe debt-denomination (a loan amount that is stable). No matter what happens in the overall market, you can always remain confident the loan amount won’t change because it’s stable. This reduces the chance of loan default because your borrowed asset (stablecoin) doesn’t suddenly increase in value.
While $AMPL is not a stablecoin, it does borrow like one because debt is denominated in fixed $AMPLs regardless of what happens to the Ample network’s expansions or contractions. Not only that, but the value of 1 $AMPL always tends towards the price target of the 2019 US Dollar, making it relatively stable in the long-term timeframe.
But that’s not all.
$AMPL is an even better safe denomination for debt than centralized stablecoins like $USDC or decentralized stablecoins like $DAI because $AMPL’s non-collateralized supply elasticity makes it an uncorrelated asset to macroeconomic shocks and liquidity crunches.
This is how $AMPL as a non-collateralized and non-dilutive currency acts as a safe denomination for debt.
Collateral Diversification
Leveraged traders looking to borrow large sums often build diversified baskets of collateral in order to reduce aggregate volatility and protect against liquidation.
Being able to borrow and lend $AMPL would enable these traders to utilize a new, low-correlated collateral asset which could reduce risk.
$AMPL is a diversified collateral asset for a number of reasons:
- Unlike decentralized stablecoins like $DAI, $AMPL is 100% non-collateralized and therefore resistant to black swan price shocks.
- Unlike fixed supply assets like $BTC with high price volatility, $AMPL swaps price volatility with supply volatility through its elastic supply and rebasing mechanism.
- Unlike fiat-based assets like $USDC, $AMPL’s price and stabilization are 100% sustained by free-market incentives.
- $AMPL lenders reduce their exposure to daily supply rebases in exchange for income from earning interest from borrowers.
All in all, $AMPL is less correlated to $ETH, $BTC, and other DeFi assets which make it attractive for diversifying collateral risk.
Moreover, in addition to the benefits mentioned above, lending and borrowing $AMPL opens up a world of opportunities and new use cases for $AMPL holders to:
- Create leveraged $AMPL trades and unlock derivatives
- Create interest-bearing $AMPL that can be staked in other protocols
- Increase exposure to $AMPL & farming
Use Cases & Scenarios
The primary reason people borrow money (especially in DeFi) is to leverage currently held assets in order to invest in additional ones.
Let’s dive into some scenarios where $AMPL is borrowed and lent for the above reason:
Example 1: Borrowing $AMPL
If you hold $ETH and want to invest in $YFI but don’t want to sell your $ETH for $YFI, you would deposit your $ETH in a lending protocol like Aave or Yield Credit and borrow $AMPL to make your $YFI purchase.
In this scenario, you borrowed $AMPL as opposed to a stablecoin and can rest easy knowing that you’ll always owe the same number of $AMPL, regardless of what happens to the Ample network’s expansions or contractions.
Example 2: Lending $AMPL
If you hold $AMPL and want to lend it out on a platform like Aave or Yield Credit, you can do that and use it to hedge your exposure to a potential negative rebase.
For example, $AMPL owners who lend 50% of their $AMPL to earn interest, only expose the remaining 50% to a possible negative rebase. This enables $AMPL holders to utilize their tokens for several different investment strategies.
$AMPL on Aave:
To get an understanding of how $AMPL will work on Aave, check out the $AMPL on Aave proposal and the $aAMPL token implementation below:
$AMPL and its aToken (aAMPL) in various Aave scenarios (Source)
