Depositors of Ampleforth’s AMPL stablecoin are expressing frustration over the freezing of their funds on Aave, a popular decentralized finance (DeFi) borrowing and lending platform. The issue has been ongoing since December 2023 and has prevented AMPL depositors from withdrawing their assets from Aave. However, other DeFi pools on Aave are not affected by this problem.
AMPL is a stablecoin designed to mirror the value of the U.S. dollar from 2019, considering inflation. The protocol adjusts the number of tokens available based on whether the price matches its target value.
In November 2022, Aave experienced an alleged market manipulation attack on its Curve (CRV) pool. The attack did not result in any profits for the attacker but led to $1.6 million in bad debt for the protocol. As a response, AaveDAO, the governance body of Aave, voted to freeze deposits and borrows for several tokens, including AMPL.
Initially, the freezing only affected new deposits and borrows, allowing old depositors to still withdraw their funds. However, in December 2023, Bored Ghost Developing Labs (BGD Labs), a development team working on the Aave protocol, discovered an additional problem that prevented withdrawals. They found a bug in the pool contract that had drained the funds, causing a lack of liquidity for withdrawals.
To address the issue, an Ampleforth representative suggested that AaveDAO should purchase AMPL tokens and distribute them to users as compensation. However, Aave developers proposed an alternative solution of paying out stablecoins instead of AMPL. They also requested that the Ampleforth team contribute 40% of the compensation from their own funds. As of now, the Ampleforth team has not confirmed whether they will provide these funds but have expressed their commitment to resolving the problem.
On March 31, BGD Labs proposed a compensation plan of $300,000 worth of USD Coin (USDC) to be paid to depositors. This proposal was passed on April 5 with over 99.9% of votes in favor.
According to Aave’s GitHub documents, depositors should receive “aTokens” equivalent to the amount they deposited into the lending pool. These aTokens represent deposit receipts and increase as the pool receives interest payments. However, BGD Labs found that the AMPL pool contract was not functioning correctly, paying out more AMPL aTokens than the available underlying AMPL. This resulted in a lack of AMPL in the pool and prevented depositors from withdrawing their funds.
Ampleforth developer Ahmed Naguib Aly acknowledged the problem and stated that they were working to resolve it. Naguib proposed a solution that involved using Aave’s AMPL reserves to reimburse users once the correct amounts owed to each depositor were determined. The proposal suggested purchasing AMPL on the open market and distributing them to depositors through a future contract.
However, BGD Labs disagreed with this proposal and suggested compensating depositors based on the average U.S. dollar value of AMPL over the four-month period since the freeze. They recommended paying out stablecoins like USDC instead of AMPL. The proposal also stated that Ampleforth should contribute 40% of the funds, with AaveDAO covering the remaining 60%.
This new proposal received criticism from forum participants who believed it was unfair for depositors to receive stablecoins instead of the actual AMPL. Some argued that repaying them in USDC transferred the burden of price impact to the depositors. Others questioned the 60%/40% funding split between AaveDAO and Ampleforth, suggesting that both parties shared responsibility for the issue.
In response to the criticism, BGD Labs proposed a compensation plan of $300,000 in stablecoins to be paid by AaveDAO. The proposal was passed with over 99% of votes in favor on April 5.
Ampleforth’s position on the matter was explained by Naguib on April 7. He stated that the team became aware of the incorrect interest payments in May 2022, but the discrepancy was small at that time and well below the AMPL reserve balance. The pool was frozen in agreement with Aave until the transition to Aave version 3 was completed. The growing shortfall was caused by deposits being reenabled on November 25, 2022, and AaveDAO selling its AMPL reserves on January 23, 2023. Naguib claimed that Ampleforth was initially unaware of these events.
Ampleforth suggested a resolution that involved compensating depositors based on the assumption that they held AMPL since before the discrepancy started growing exponentially. This proposal was rejected by BGD Labs, who wanted the amount owed to be calculated based on off-chain simulations. Eventually, the Ampleforth team proposed AaveDAO buy back AMPL to repay depositors.
Ampleforth expressed its commitment to supporting the investigation and finding a resolution. However, they believe that BGD Labs should take the lead in resolving the situation as they are best positioned to do so.