AAVE x AMPL a Match Made in Heaven

AAVE x AMPL a Match Made in Heaven

By Brawnd0 | CryptoLetter | 19 Mar 2021

Aave, originally called ETHLend, is considered to be one of the OG’s of the DeFi.

It’s one of the top 3 DeFi projects by total value locked and it made it here by pushing the boundaries of what we can do with money, most notably including flash loans – which let developers borrow instantly without needing to put up any collateral.

Aave’s introduction of flash loans was an innovation never-before-seen in traditional finance (TradFi). They brought something new to the table, they empowered arbitrage traders, they empowered users, and they motivate developers to build unexploitable protocols. 

Aave has always pushed the limits of what is possible with DeFi while pursuing its goal to bring decentralized finance to the masses. 

So what’s next? How can Aave push the boundaries and re-define what DeFi can do?

I’ll tell you how. 

The next giant leap for Aave will be the introduction of elastic supply assets and there no better candidate than $AMPL. Rebase assets are new and innovative, they’re not possible in TradFi, and they are currently on edge of DeFi. 

Why AMPL is a Perfect Fit for Aave?

Just like how Aave is a pioneer of its own sector in DeFi lending with the likes of flash loans, interest-bearing aTokens, and the ability to switch between stable and variable rates; Ampleforth is the pioneer of its own DeFi sector being elastic supply assets. 

Ampleforth’s rebasing asset, $AMPL is the first elastic supply asset, which is non-dilutive and scalable for all of crypto & DeFi’s needs. And just like Aave, $AMPL is a groundbreaking innovation for DeFi that continuously pushes its boundaries. 

For instance, Ampleforth:

  • Brought the concept of rebasing to the world
  • Brought the first asset that transfers price shocks to supply changes 
  • An early player in the liquidity mining space
  • Is like Bitcoin (algorithmic and uncollateralized) but can be used to denominate stable contracts

Ampleforth is innovative, groundbreaking, and pushing the boundaries of DeFi in more ways than just one, just like Aave. Therefore, bringing these two projects together is literally a match made in heaven. 

Benefits of AMPL on AAVE

$AMPL Provides Safe Debt-Denomination
The vast majority of borrowed assets in DeFi are stablecoins like DAI, USDC, and USDT because they provide safe debt-denomination. While $AMPL is not a stablecoin by conventional definitions, it does borrow like one.

Let me explain:

The value of 1 $AMPL always tends towards the price target of the 2019 US Dollar ($1.027) and while Ample automatically adjusts supply in response to demand, the debt denominated in $AMPL remains fixed.

This is how $AMPL, as a non-dilutive currency, can act as a safe denomination for debt.

$AMPL can be a Diversifying Agent in a Basket of Collateral
The primary customer of Aave and other DeFi lending platforms are leveraged traders looking to borrow large sums of capital so they can speculate on the market. 

Yeah I know, it’s risky. But this is what they do. And they make a lot of money doing it.

Now, in order for them to reduce their risk and to protect themselves against liquidation on their loan, these leveraged traders often build diversified baskets of collateral. Ideally, they want this basket of collateral to be less correlated to the assets they’re speculating on. 

While most cryptos are closely correlated, $AMPL is a low-correlated collateral asset. 

As explored in the Gauntlet Network’s independent report on the Ampleforth protocol, $AMPL exhibits a unique volatility fingerprint that makes it less correlated to $ETH, $BTC, and other DeFi assets. 

$AMPL is lowly correlated to other crypto assets for a number of reasons being:

  • 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.

Lending $AMPL Trades Exposure to Rebases for Income from Interest
If you hold $AMPL and don’t immediately sell them into another asset, you expose yourself to a potential negative rebase risk where your personal supply of $AMPL automatically decreases in response to demand.

However, if you choose to lend your $AMPL and a negative rebase occurs, you reduce your exposure to it while earning interest from borrowers. 

For example, $AMPL holders who lend 50% of their $AMPL to earn interest only expose half their stack to a possible negative rebase. In this way, $AMPL fits several different investment strategies and investor profiles.

$AMPL on Aave allows for more and more Complex Products to be Created
Perhaps the most important benefit to having $AMPL on Aave is the sheer amount of innovative DeFi products that will be created. As you know by now, $AMPL is unlike any other crypto asset due to its elastic supply and rebasing functionality. 

By supporting $AMPL on Aave, it will unlock $AMPL derivatives that enable the creation of more and more complex products like rebase rate swaps, swapping LP tokens, leveraged $AMPL trades, interest-bearing $AMPL that can be staked in other protocols, and so much more. 

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