"Perseverance separates success from failure." - Steve Jobs
Summary
In Q1-Q2 2024, we saw a hot start to the year and then a decline in lender liquidity due to market conditions and several user experience frictions as I outlined in the last report. In Q3-Q4 2024, the protocol expanded to multiple chains, found some product market fit in select pools, and burned over 2 million AJNA.
The good; 2m+ AJNA were burned, we executed a major multi chain integration that provided Ajna a permissionless incentive system for individual pools (Merkly.xyz), 4 incentive campaigns outside of Summer.fi and Juiced.app, 5 new chain deployments, 189 new pools, and improved liquidity for the AJNA and bwAJNA tokens, with permanent liquidity being added on both mainnet and Base.
The bad; While issues have been well identified, their solutions have been taking longer than expected. Protocol usage is down ~70%. We began Q2 at 12.92m TVL, 7.94m lent, and 4.89m borrowed. Q4 completed with 3.72m TVL, 1.21m lent, and 704k borrowed. Juiced.app is being shut down, due to demand for their Vault products shrinking. It’s been difficult to find partners willing to run incentive campaigns for Ajna pools, and lenders to provide liquidity in new and existing pools.
More context; AARKs remain highly anticipated and are expected to release in Q1 of 2025. The Secondary market for lender positions is code complete and is in the process of gaining front end support by Ajnafi.com, expected to release sometime in Q2 2025.
Successes
Multiple Deployments
The Ajna Protocol was deployed on Avalanche, Rari Chain, Linea*, Binance Smart Chain*, and Filecoin FVM*. These deployments are supported by Ajnafi.com.
* not added yet to info.ajna.finance (1/16/25)
Merkl Integration
We successfully funded and executed an integration with Merkl, giving most of the Ajna deployments a permissionless incentivization system for pools. Now anyone can incentivize borrow or lend activity in any pool.
Incentive Campaigns
Several incentive campaigns ran;
Summer.fi continued,
The syrupUSDC/USDC pool on Ethereum mainnet,
The mBASIS/USDC pool on Ethereum mainnet,
and for Rari Chain as a whole.
AJNA and bwAJNA Liquidity Deployment on Base
1m AJNA of permanent liquidity was successfully deployed to Uniswap pairs: AJNA/USDC and bwAJNA/USDC on Base using Charm Vaults as the result of a grant.
AJNA/USDC
500,000 AJNA
bwAJNA/USDC
500,000 bwAJNA
CEX Listing: Ascendex
In July the AJNA token was listed on Ascendex, formerly known as BitMax, a tier 2 exchange. The listing did not generate much real volume, however the token now has a venue for investors to access AJNA tokens outside of Ethereum mainnet and Base.
Organic Pools that found Product Market Fit
We saw a handful of pools gain usage on their own; PRIME/USDC on Ethereum MainnetsUSDe/DAI on Ethereum Mainnet
WBTC/DAI and WBTC/UDSC on Ethereum Mainnet
COW/DAI on Ethereum Mainnet
YFI/DAI on Ethereum Mainnet
rETH/DAI on Ethereum Mainnet
HAI/USDC on Optimism
USDC/DEGEN shorting market on Base
wstETH/WETH on Base
cbETH/WETH on Base
Challenges
Lack of lead conversion
Conversion is defined as an integration of Ajna or an action taken on the protocol such as starting a pool, depositing lender liquidity, borrowing tokens, or participating in auctions. Out of 180+ engaged leads, we converted 10 of them, for a 5% conversion rate.
Continued Lack of traction
Ajna’s usage continues to decline despite continued efforts to find and kickstart new pools and integrations.
Juiced Vaults Shutting Down
Juiced is in the process of shutting down.
Token Launch Platform - Moon Inc
We are working on finding a partner to fund the development of the UI to come closer to feature parity with pump.fun.
Ajnamatch
Ajnamatch.com has not found much usage among potential Ajna users. More promotion is needed for the tool to gain traction.
Business Development Strategies
Unchanged since last report
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Deploy Ajna on popular EVMs
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Approach and educate potential users and integrators
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Approached large lenders
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Approached new projects with tokens
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Approached assets offboarded from other Defi protocols
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Approached memecoin communities
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Approached token issuance platforms
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Approached vault protocols
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Explore novel use cases
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Token Launchpad
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Stablecoin issuance
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Perps
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Permissioned pools
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Fixed Rates
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Push for solutions to key problems
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Passive lender UX product
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Notification tools
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Incentive system
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Open source liquidation bot
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Improve Token Liquidity
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Pursued CEX Listing
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Approve grants for the PMM
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Attract proposals for additional solutions
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Retrospective look at Problems & Solutions
Active Management User Experience Puts Off Lenders
Problem
The active management required for lender positions makes Ajna unattractive to lenders, especially large lenders like Spark and Frax who require minimal hands-on interaction. Ajna's oracleless design presents a significant user experience challenge: lenders cannot passively provide liquidity but instead must actively monitor and adjust the price bucket of their assets, effectively assuming the role of an oracle. This friction is exacerbated by situations where deposits freeze or lenders are left holding collateral.
Active management reduces Ajna's appeal compared to platforms with passive experiences, despite the removal of oracle exploit risk. Many prefer the risk associated with relying on an oracle over the burdensome task of position management.
There is currently no product on top of Ajna that enables an automated, trustless, passive lender experience. Juiced attempted to do this with their vault product but could not scale and did not have a true decentralized solution to this problem.
Solution
Automation would offer a superior user experience. A lender position automation tool, called AARK, is being built by Prototech Labs. The tool can be used to manage a lender position in a single pool or across multiple pools, optimizing for yield.
Update
The release target date has been extended to sometime in Q1-Q2 2025.
High Yield Environment Affects Ajna’s Attractiveness
Problem
Lenders leave when there is more money to be made in easier fashion. The Ajna Protocol TVL began a major downtrend when MakerDAO hiked the Dai Savings Rate to 15%. Lenders could now get a near risk-free, fully liquid, passive product to generate 15% on their capital. Today, the DSR is at 11.5%, still a quite attractive rate for stablecoin owners. This along with other opportunities like Ethena’s sUSDe attract a huge share of lender liquidity in Defi.
This problem also affected the start of new pools. Since new pools could only offer a maximum starting rate of 10%, it is difficult for them to attract lenders in such a high yield environment.
When a pool is no longer attractive to lenders they leave, utilization spikes, borrow rates rise, and borrowers close positions. As liquidity becomes available to withdraw, more lenders leave. This negative feedback loop occurred in a number of pools since the last published report.
Solution
One approach could be the growth of the long-tail asset market segment. These assets should command higher interest rates by default, offering lenders an option for a higher yield, higher risk product. However, when high yield is offered for low risk it is very difficult for Ajna to compete, though conditions like that are not expected to last for long.
Update
We have found it difficult to kickstart pools in the long tail asset segment due to lack of willing lenders, since they are the ones that have to price the collateral, which is volatile and often lacks liquidity. As a result the lender’s risk is too great, and the borrow demand is usually unproven or non-existent.
Max Starting Rate of 10%
Problem
New pools have a difficult time finding product-market-fit due to the 10% maximum starting interest rate. This makes it difficult to attract lenders in cases where the desired rate is greater than 10% or during periods of low-risk 10%+ yields.
One of Ajna’s primary target markets is long tail assets, which, in theory, should command higher rates than large liquid assets like ETH and BTC. These long tail asset pools can’t start at their implied market rates.
Solution
The current solution is for someone to lend and borrow a small amount to create the conditions for interest rate hikes and then hike the rate themselves. This is far from easy UX, and could cost a considerable amount in transaction fees. The alternative is for a lender to enter into a pool at the 10% rate, expecting borrowing utilization to be high enough that the rate will reach its true market price in a reasonable span of time.
A possible solution is to create a system that automates the rate adjustment process for a new pool. No one is working on this yet.
Update
We are looking for someone to build this.
New Pool Chicken and Egg Problem
Problem
New pools require a willing lender to commit quote tokens in exchange for paying a small lender deposit fee of 8 hours of interest and earning 0% lend APR until a borrower appears. New pools discourage lenders from entering due to the opportunity cost, small upfront expense, and lack of guaranteed borrowers.
Solution
Since Ajna targets assets that don’t have lending or borrowing facilities, it’s important to have a tool that can match borrowers and lenders off-chain. For this, my colleague and I developed and released ajnamatch.com, a way for borrowers and lenders to advertise or find opportunities without dealing with upfront costs.
Another solution is to partner with a lender who is willing to take risks in search of niche lending opportunities. Such a party has recently become available and is hunting for new high yield pools to lend in.
Update
Ajnamatch.com has seen little real usage, despite efforts to promote it. We have partnered with a group called LTCP (Long Tail Capital Partners) to seed new pools. As a result we’ve managed to gain lender liquidity between 10k and 100k for at least 3 new pools.
AJNA Liquidity and Price Reduce Effectiveness of Incentives
Problem
The effectiveness of incentives is declining due to a lack of liquidity to sell into and a low AJNA price. The underlying problems are low AJNA demand and low liquidity due to insufficient market making.
Solution
A solution for the low token price is to grow protocol usage so more AJNA gets burned, increasing demand for the token. If this happens, speculative demand could also rise.
There are a few solutions for improving liquidity: One approach is to provide permanent liquidity on a decentralized exchange using tokens from the protocol’s treasury. The Ajna Perpetual Market Maker(PMM), which was deployed in March 2024, is set up to do just that. This smart contract system holds AJNA and makes it available for flash loans resulting in better efficiency and UX for Claimable Reserve Auctions. More related, the PMM can create permanent AJNA liquidity by LPing its holdings permanently on Uniswap once a specific AJNA price is reached. The PMMs have not released any AJNA yet, but will in the future when the price hits 20,000 AJNA per ETH & 1,000 AJNA per ETH.
Another approach is to make AJNA liquidity available in new places like L2s and centralized exchanges. This would enable people to purchase AJNA without incurring large transaction costs associated with Ethereum Mainnet and it would provide access to the token to new segments of people; namely those who aren’t using Ethereum Mainnet.
Update
Double2win proposal failed to pass in Cycle 3. Ascendex AJNA listing deal was successful but has not contributed much retail demand.I partnered with StableLab to execute the Aerodrome AJNA and bwAJNA Liquidity Deployment proposal, which passed in Cycle 3, and is being topped up as a result of Cycle 4; it adds permanent AJNA and bwAJNA liquidity against USDC on Base via Charm Vaults. They have been performing well for the last quarter.
Friction Setting Up Incentives
Problem
The problem was the inability to permissionlessly set up incentive campaigns.
Solution
Complete
Update
An integration with Merkl.xyz was done. Now we have a reliable and user-friendly incentive system for Ajna on Ethereum, Arbitrum, Base, Optimism, Polygon POS, Mode, Gnosis, Blast, and Avalanche.
Lender Deposit Availability & Cost
Problem
Rephrasing what kfedoseev wrote here; Withdrawals can be unavailable due to ongoing liquidations, high utilization or long periods of rate inefficiencies. Multiple days of near 100% utilization are very likely to happen due to how Ajna is designed. Unavailability of withdrawals for lenders increases the risk of forced liquidations, which are counterproductive for both sides: lenders, since they act as kickers, will likely lose some of their bond, while borrowers suffer liquidations and gets charged penalty fees even if they were not below their liquidation price.
Deposits and withdrawals on Ethereum Mainnet are very gas intensive and can be too expensive for regular users during periods of high gas demand. When only portions of their deposit are available this leads to larger potential costs for exiting positions.
These frictions reduce the appeal to lend on Ajna.
Solution
A gasless market for Ajna lender positions was proposed and approved. This tool would give lenders the ability to exit their positions by selling them at book value or a discount. It would create a win-win scenario by enabling new lenders to enter positions advantageously, avoiding the lender deposit fee and potentially getting a discount.
Update
The code is complete. Kiril is working with Ajnafi.com to have a front end developed to support this marketplace. ETA Q2 2025.
NFT Pools Struggle to Gain Users
Problems
There has not been much NFT activity on Ajna since launch. It’s hard to find lenders, max 10% rate is a blocker, and single lender/single borrower pools are easy to manipulate. On top of that, NFT collection and subset pools don’t make sense unless all the NFTs are the same value.
Solutions
Engage leads for NFT markets and kickstart the first NFT pool.
Update
We deployed Ajna onto the Rari Chain, in hope to see more NFTs used as collateral. We also ran an incentive campaign for a few months to attract activity. Unfortunately, no NFT pools were launched.
L2s Struggle to Gain Users
Problem
Ajna deployments on L2s are struggling to attract significant activity. While the previously mentioned issues also affect L2s, specific concerns related to them are listed below.
Solution
Besides continued marketing and direct outreach to asset originators and holders on those networks, solutions should be pursued for the issues below.
Update
We integrated Merkl.xyz so that these chains have an incentive system and have done a ton of outreach to kickstart new pools with some small successes.
Lack of Liquidation Coverage
Problem
There is not enough guaranteed liquidation coverage across Ajna deployments. Known parties only cover Ethereum and Base, and soon Avalanche. While all network deployments have liquidation features available on Ajnafi.com, they do not have guaranteed constant monitoring for opportunities. No guaranteed coverage affects the confidence of potential users who stand to lose money if liquidations are not attended to. We only know of two known parties that have liquidation bots and several parties running bots privately. For them to run them on a new chain takes persuasion. Deployments without coverage are a risk to Ajna users, handicapping growth and confidence.
Solution
One part of the solution is to make sure liquidations are visible to the public. I worked with Block Analitica to set up a channel on the Ajna discord that pushes messages about liquidation events from all the Ajna deployments.
Another part of the solution is to get an Arbtake bot running on all these chains. Arbtake matches lender liquidity at the highest price buckets against debt balances in liquidation. Arbtake can earn the person who runs it a profit, and requires no external capital except to pay for the transaction fees. There are many paths to achieving this goal. One is to make such a bot open source and available to the public through grants or a willing stakeholder and then to try to convince a few parties to run them. Another is to integrate with a cross-chain vault protocol that can automatically execute a strategy that generates yield when it sees a profitable arbtake opportunity.
We also need an open source liquidation bot released so that the barrier to entry would be lowered for new participants.
Update
The discord channel runs well, and there haven’t been any missed liquidations in the last 6 months. There is no Arbtake bot running, our efforts to set this up have been unfruitful so far–We have an open RFP for the Arbtake bot.
Newly Discovered Problems & Solutions
Difficulty Servicing Large Borrowers
Problem
Many of the most impactful borrowers in Defi are “whales” who borrow millions of dollars against their assets. Ajna’s design makes it difficult to facilitate borrow positions in large sizes because if there is a large amount of available lender liquidity the lend rate in the pool is very low. This results in the withdrawal of that lender's liquidity after a short time. It requires the lender to take on opportunity cost while they wait for their deposit to be utilized.
Solution
We are targeting stablecoin issuers to become large lenders in Ajna since they are less sensitive to opportunity cost than retail users.
Statistics
+2m AJNA tokens burned
+189 Number of pools
+5 Number of Blockchains
+~100 Leads Engaged
+1 New Tools
+3 Incentive Campaigns
+~200 Twitter Followers
-9.2m TVL difference
-6.73m Total Lent
-4.2m TVB difference
<100 Total Users on Ethereum Mainnet
Conclusion
The issues raised in the Q1-Q2 2024 report still affect the protocol because the solutions have not yet come to market. As I mentioned in the previous report, to achieve product-market fit and fulfill its vision, Ajna must improve UX. The challenges are solvable, and numerous solutions are in progress. I am eager to see them come to market.
Authorship Credits:
David Utrobin, Business Developer
Akash Patel, Co-Founder
Joe Quintilian, Co-Founder