Users of Ampleforth’s stablecoin, AMPL, have been experiencing frozen funds on the popular decentralized finance (DeFi) platform Aave. This issue has been ongoing since December 2023 and has prevented AMPL depositors from withdrawing their assets from Aave. Other DeFi pools on Aave are not affected by this problem.
AMPL is a stablecoin designed to track the value of the U.S. dollar adjusted for inflation. The protocol adjusts the number of tokens available based on the price of AMPL relative to the dollar. In November 2022, Aave suffered a market manipulation attack on its Curve (CRV) pool, resulting in $1.6 million of bad debt for the platform. As a response, AaveDAO decided to freeze deposits and borrows for 17 tokens, including AMPL.
In December 2023, Bored Ghost Developing Labs (BGD Labs), a development team working on the Aave protocol, discovered a bug in the AMPL pool contract that allowed funds to be drained. As a result, there was insufficient liquidity to process withdrawals. Ampleforth suggested that AaveDAO should purchase AMPL tokens to compensate users, but Aave developers proposed paying out stablecoins instead. Aave developers also requested that Ampleforth contribute 40% of the compensation from its own funds.
BGD Labs proposed a compensation plan of $300,000 worth of stablecoins to be paid out to depositors. This proposal was passed with over 99.9% of votes in favor. The amount owed to depositors is expected to be higher than $300,000, indicating that further distributions will be needed.
Ampleforth released a statement explaining that they were aware of the incorrect interest payments since May 2022 but considered it to be a minor issue at the time. They agreed with Aave to freeze the pool until the transition to Aave version 3 was completed. The shortfall increased when deposits were reenabled on Nov. 25, 2022, and when AaveDAO sold its AMPL reserves on Jan. 23, 2023. Ampleforth proposed a resolution to compensate depositors quickly, but BGD Labs rejected this suggestion and asked for off-chain simulations of the AAVE platform behavior to determine the amount owed.
Ampleforth stated that they will continue to offer support to resolve the problem but believe that BGD Labs should take the lead in finding a solution.
Ampleforth’s delayed response to the incorrect interest payments is inexcusable. They should have taken action sooner to prevent this mess. 😠