About Lending & Borrowing AMPL

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About Lending & Borrowing AMPL
AMPL is an algorithmic unit of account and its first use case is debt denomination. Users can lend or borrow AMPL through the AAVE protocol. This document expands on the unique properties that arise from lending and borrowing AMPL. 
Overview
The Ampleforth protocol transfers the volatility of demand from price to supply. There are two important things to note about this:
The Ampleforth protocol adjusts supply in response to price algorithmically, but it is market actors reacting to supply changes that restores price to its target behaviorally. Large changes in demand take more time to restore price to its target and small changes in demand take less time to restore price to its target.
Although holders of AMPL can be certain that AMPL price reverts to its target over time, they experience unbounded stock volatility similar to that of floating-price tokens.
Contract denomination using AMPL has the effect of separating AMPL’s price volatility from its stock volatility because contracts denominated with AMPL are only exposed to changes in price.
Example 1: Imagine Alice borrows 1000 AMPL from Bob to be paid back at a later date. Bob does not have to worry about the supply changes associated with the 1000 AMPL Alice borrowed because he is no longer in possession of the 1000 AMPL he lent. Bob is simply owed 1000 AMPL at some time in the future. 
AAVE is a market driven lending and borrowing protocol. Lenders deposit assets into a pool and receive variable interest on the assets lent. Borrowers pay interest on the assets borrowed. Interest rates are determined as a function of pool utilization percentage. The more utilized a pool is the higher the interest rates, the less utilized a pool is the lower the interest rates. 
AMPL has unique behavior on AAVE that is unlike other assets on the platform. Here we cover the AAVE specific considerations around lending and borrowing AMPL. 
Recall from above that contract denomination has the effect of separating AMPL's price volatility from its stock volatility. When a user deposits X AMPL that signals an intent to lend up to X AMPL, but this doesn't mean that all of the AMPL deposited has been lent. 
Example 2: Imagine Alice deposits 2000 AMPL into an empty pool on AAVE and 0% of the pool is utilized. In this case Alice is still exposed to supply volatility in addition to price volatility because all of the AMPL in the pool effectively belongs to her. 
Example 3: Now imagine Alice deposits 2000 AMPL into a pool on AAVE and Bob immediately borrows 2000 AMPL. That is to say, this time the pool is 100% utilized. In this case Alice is not exposed to supply changes at all because the AMPL is in Bob's possession. She is simply owed 2000 AMPL + interest at some time in the future. 
Example 4: This time imagine Alice deposits 2000 AMPL into a pool of AAVE and Charlie immediately borrows 1000 AMPL. In this case the pool is 50% utilized and Alice is exposed to 50% of supply changes because half of the pool "belongs" to her and the other half is owed to her with interest at a later time in the future. 
Lending AMPL on AAVE reduces exposure to supply changes in exchange for interest payments. Borrowing AMPL on AAVE exposes users to supply changes unless the borrower sells. Both lenders and borrows know that AMPL has a long-run price target and can allocate according to their risk profiles. 
Lending & Borrowing FAQ
Below we capture some of the most common questions asked about lending and borrowing AMPL and about AMPL on AAVE. Please join the Ampleforth community Discord server; our team and members of the community look forward to helping you understand and use AMPL.
1. What are the benefits of lending and borrowing AMPL vs a typical token like ETH?
Typically when a person borrows money they intend to put that money to work immediately and then pay the money back at a later date with interest. 
When a loan contract is denominated using a floating price currency like ETH, the borrower has to take the price volatility of ETH into consideration. For this reason, most of borrow activity on today's decentralized lending platforms is denominated in centralized stablecoins. 
AMPL has a stable long-run average price. As a result, borrowers can take out a loan, knowing that eventually the amount borrowed can be repaid by a value that doesn't change in some unbounded way. For more information see the Ampleforth Network Durability Report. 
2. What are the benefits of lending and borrowing AMPL vs a stablecoin?
The decentralized finance movement aims to create an alternative financial ecosystem that is open-source, borderless, and resistant to political tampering. AMPL enables the denomination of stable on-chain contracts without any reliance on centralized custodians or buyers of last resort. For more information see the Ampleforth Network Durability Report. 
3. What are the differences between lending and borrowing AMPL vs a stablecoin?
AMPL has a long-run price target of one 2019 US dollar, but holders of AMPL experience supply volatility that is similar to typical floating-price tokens. Please see the Overview above for more detailed information. 
4. How do I liquidate aAMPL when the utilization is at 100%?
When the AAMPL pool is at 100% utilization AAMPL can be sold on secondary markets like 1-inch. 
5. Why is the APY so high? Is it real?
AMPL is a unique asset that can generate high lender and borrower demand under certain market conditions. We will expand on this in future iterations, please see the following thread for more information. 
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About Wrapped AMPL
About the SPOT Perpetual Note
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