Deep Dive — Borrowing Demand on Aave — Stables, Other Crypto’s and $AMPL
$AMPL is now on Aave and it’s the biggest thing for Aave since… well, Aave itself. Everything since has been vanilla. There’s just nothing else that borrows and lends like $AMPL.
Once people catch on to this, watch out — $AMPL will eat other pools’ liquidity.
Let’s begin by looking at the borrow demand for different types of assets on Aave: Crypto Assets | Stablecoins | $AMPL
Crypto Assets
Traditional crypto assets like $BTC, $ETH, $LINK, $BAT, etc. are highly volatile. There is no element working to push the price of these assets to any destination. Let alone toward anything predictable. There is simply no year-to-year or month-to-month predictability in price. Price can keep on going up to the point of no return, or it can crash severely.
That’s because, with traditional cryptos, all market demand is reflected in the price alone. This means that it is highly risky and impossible to determine a debt obligation.
Therefore, nobody wants to borrow these types of assets because they have only risk, no upside. If you borrow these when their price increases, you will get smoked. As a result, everyone wants to lend these, but no one wants to borrow them.
It’s true. Just take a look at these markets on Aave. The utilization of these crypto assets is incredibly low. In fact, $USDC borrowing alone is more than 2x all other asset borrowing combined!
Stablecoins & $AMPL
Stable assets such as $USDC, $DAI, and $USDT have pools in the Billions because their prices are stable, which is why they have borrowing demand. When you borrow a stablecoin, you don’t have to worry about 100x price moves that will wreck your position. Your debt always remains the same.
The same goes for $AMPL.
In my previous piece, I touched on the fact that $AMPL borrows like a stablecoin — its price always reverts to its price target. In this way, $AMPL serves as a safe denomination of debt, like a stablecoin.
Explaining it better than I, is Brandon Iles, the CTO of Ampleforth:
And explained another way, Manny from the first tweet above puts it like this:
But what’s more, is that $AMPL also has volatility.
Yes, that’s right. It’s both stable and volatile.
Confused yet?
Bear with me.
$AMPL’s multi-variable volatility with price and supply provides borrowers with the potential for upside whether its price goes up or down while borrowing. In this way, $AMPL is changing the lending and borrowing game.
I explained this in more detail in my previous piece here:
Seeing as $AMPL can borrow like a stablecoin while also providing the potential for upside, it’s naturally going to be in high demand. And it is. Since going live on Aave on July 24, $AMPL has maintained a near 100% utilization rate, with the exception of just a few days:
$AMPL is an asset people actually want to borrow — like $DAI and $USDC — its pool will be in the billions.
$AMPL Utility > $USDC Utility
If you’re still not sold on this idea that $AMPL on Aave will steal liquidity from $USDC and other stables to the point of surpassing these “high in demand” pools, let me try this angle.
The utility of $AMPL far surpasses that of stablecoins like $USDC.
Here’s why:
$AMPL utilization on Aave is at 100% and it will continue to maintain near 100% well into the future for as long as the incentives to lend and borrow $AMPL are there. And since the incentives that drive $AMPL’s borrowing and lending demand are baked into its dynamic but rules-based protocol, the incentives aren’t going anywhere ;)
There will be demand to borrow $AMPL when:
- It’s in negative rebase territory — people will borrow it, to short it. Then buy back and repay their debt when the price is lower.
- It’s in positive rebase territory — people will borrow it, to go long. They will profit from the $AMPL they get from positive rebases and repay their debt when the $AMPL price returns to where they borrowed it at.
- It’s in neutral territory — people will borrow it in anticipation of it going either up or down and longing or shorting depending on what happens.
There will be demand to lend $AMPL when:
- It’s in negative rebase territory — $AMPL whales and maxis will lend it to offset losses from negative rebases, earn interest, and increase their % of $AMPL supply from the profits.
- It’s in positive rebase territory — profit-focused short-term farmers will lend to earn $AMPLs high APYs for lending and incur no risk.
- It’s in neutral territory — people will borrow it in anticipation of it going either up or down and play the game accordingly.
Do you see what’s going on here? Do you understand the implications of all this?
$AMPL on Aave is its own beast. There’s nothing else like it. People will actually want to borrow and lend $AMPL, so it should be the size of other pools that people actually want to lend — like the ones in the billions — $USDC and $DAI.
Once people catch on, you can bet it’s going to take off. We’ll see farmers dumping their $USDC for $AMPL to get a taste of those high APYs and to experience the mechanics of rebases.
The stablecoin pools will shrink, and the $AMPL pool will grow.
$AMPL is going after $USDC. Watch out.
