Henry J. Kaiser, "Problems are only opportunities in work clothes"

Summary

Ajna’s vision is to provide users with a platform to borrow or lend almost anything in a systematically less risky and more accessible way. However, there are challenges to overcome for this vision to be realized.

The Ajna Protocol launched in January 2024 and quickly gained momentum, reaching $44 million in TVL by early March. The decline in protocol TVB and TVL began on March 10th, when MakerDAO adjusted their Dai Savings Rate to 15%, offering liquidity providers a higher yield than most Ajna pools. Ajna’s metrics have since steadily declined through to today.

Attracting users continues to be a challenge due to a handful of issues. Ajna’s stakeholders are working on solutions and exploring new ways to provide value to end users. Below are the problems, solutions, strategies, and results from the first two quarters post-launch.

Problems & Solutions

Active Management User Experience Puts Off Lenders

Problem
This is the most critical issue. The active management needed for lender positions makes Ajna unappealing, particularly to large lenders who require minimal hands-on interaction. Ajna's oracleless design poses a significant user experience challenge: lenders cannot passively provide liquidity but must actively monitor and adjust the price bucket of their assets, effectively assuming the role of an oracle. This friction is further compounded in 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 and easy access to new pools. Lenders seem to prefer the risk associated with relying on an oracle over the burdensome task of position management.

There is currently no product built on top of Ajna that offers an automated, trustless, passive lender experience. Juiced attempted to address this with their vault product but faced scalability issues and did not develop a viable solution to this problem.

Solution
An automated lender position management tool would significantly enhance the user experience and encourage greater adoption of Ajna by lenders. Prototech Labs is developing ARK, which can manage lender positions across single or multiple pools. The tool is expected to be released sometime in Q4 2024.

High Yield Environment Affects Ajna’s Competitiveness

Problem
Lenders leave when there is more money to be made in easier fashion elsewhere. The Ajna Protocol TVL began a major downtrend when MakerDAO hiked the Dai Savings Rate above what the majority of Ajna pools were paying. Lenders could now get a near risk-free, fully liquid, passive product to generate 15% returns on their capital.

New pool creation was also affected. Since new pools could only offer a maximum starting rate of 10%, it was 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 where lenders and borrowers exit resulted in a 80% decrease in TVL and an 86% decrease in TVB from our March 10th peak.

Solution
There is no clear solution to this problem, though the DSR has dropped to 8% at the time of writing, making a handful of Ajna pools attractive again from a rate perspective. One approach could be the growth of the long-tail asset market segment. These assets theoretically command higher interest rates, offering lenders an option for higher yield, higher risk products. However, when high yield is offered for low risk it is very difficult for Ajna to compete, though such conditions are not expected to last.

New Pool Chicken and Egg Problem

Problem
New pools require a lender to commit quote tokens, pay a small lender deposit fee of 8 hours of interest, and earn 0% lend APR until a borrower appears. These conditions 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 Artem Gordon and I released ajnamatch.com, a way for borrowers and lenders to advertise or find opportunities without needing to commit on-chain.

Another solution is to partner with a lender who is willing to take chances in search of new lending opportunities. Such a party has recently become available and is hunting for new high yield pools to lend in. Post your opportunities!

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 is proposed. 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.

Max Starting Rate of 10% for New Pools

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.

Ajna targets 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. Noone is working on this yet.

Unappealing Incentives Caused by Low AJNA Liquidity and Price

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, 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 the purchase of AJNA without incurring large transaction costs associated with Ethereum Mainnet and it would provide exposure to new groups; namely those who aren’t using Ethereum Mainnet. One proposal requests to incentivize Arbitrum AJNA liquidity through a protocol called double2win which awards the bid side liquidity with all of the LP fees. The proposer noted that it will be submitted in the next grant cycle. As for getting a CEX listing, I have been working to get a deal approved and funded. Good news should be coming soon!

Friction Setting Up Incentives

Problem
Setting up incentives is hard.

There are two ways to set up incentives for specific pools. One is to negotiate with Summer.fi or Juiced.app, who are only able to offer incentives on certain networks and according to their own discretion. The second is to use an alternative method to utilize pool usage data and distribute tokens or points through an airdrop or claimable token tool. Both paths are time consuming and introduce friction to the process of setting up incentives.

The lack of an automated and permissionless system for pool incentivization reduces the amount of incentives available to Ajna users and prevents interested parties from having a smooth experience setting them up.

Solution
One solution is to complete the last mile of development for a “rewards manager” smart contract system. The code is complete but hasn’t been audited and there is no front end application for the tool.

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.

This analysis is anecdotal. I have not spent much time analyzing ERC-721 usage on Ajna due to the lack of live examples and my own lack of testing.

Solutions
None that I am aware of.

L2s Struggle to Gain Users

Problem
Ajna deployments on L2s are struggling to gain any traction. While the previously mentioned issues also affect L2s, specific concerns related to their lack of growth are listed below.

Solution
Besides addressing the issues above and continuing outreach to asset originators and holders on those networks, solutions should also be pursued for the issues below.

Friction Around and Lack of Incentives on L2s

Problem
Incentives are difficult to set up on L2s because there is no ready tool available and because existing integrators who run incentives on Mainnet don’t support this capability on L2s. Even Summer.fi’s Base incentives must be claimed on Ethereum Mainnet.

Solution
As mentioned above, one solution is to complete the last mile of development for a “rewards manager” smart contract system. The code is complete but  hasn’t been audited and there is no front end application for the tool. Having incentives available on L2s could be a powerful tool for kickstarting activity on those deployments.

Lack of Liquidation Coverage on L2s

Problem
Guaranteed liquidation coverage across Ajna deployments is lacking. Known parties only cover Ethereum and Base, and soon Avalanche. While all network deployments have liquidation features available on Ajnafi.com, there is no guarantee that parties are constantly monitoring pools and acting on opportunities. This affects the confidence of potential users who stand to lose money if liquidations are not attended to.

I am aware of only two parties that operate liquidation bots. Persuading them to run these bots on a new chains is difficult given the lack of activity on those chains. Bad liquidation performance poses a risk to Ajna users.

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 our discord that pushes messages about liquidation events from all the Ajna deployments. More can be done on the visibility front.

Another part of the solution, at a minimum, is to get an Arbtake bot running on all these chains. The Arbtake function is built into the protocol, it matches lender liquidity at the highest price buckets to debt in liquidation. Running Arbtake can earn a profit, and requires no external capital except to pay for the transaction fees. One path 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.

Strategies

1. Deploy Ajna on popular EVMs

2. Approach and educate potential users and integrators

   1. Approached large lenders

   2. Approached new projects with tokens

   3. Approached assets offboarded from other Defi protocols

   4. Approached memecoin communities

   5. Approached token issuance platforms

   6. Approached vault protocols

3. Explore novel use cases

   1. Token Launchpad

   2. Stablecoin issuance

   3. Perps

   4. Permissioned pools

   5. Fixed Rates

4. Push for solutions to key problems

   1. Passive lender UX product (soon)

   2. Notification tools

      1. Domino (live)

      2. TG notification bot (live)

      3. Discord Liquidation Notification Channel (live)

   3. Ajnamatch.com (live)

   4. Open source liquidation bot (in progress)

5. Improve Token Liquidity

   1. Pursue CEX Listing (soon)

   2. Approve grant for the PMM (live)

   3. Attract proposals for additional solutions (in progress)

Results

Failures

Lack of L2 traction

Ajna is deployed on nine networks, yet Ethereum mainnet and Base account for 98% of Ajna TVL. Marketing and outreach have had little impact to attract users.

Lack of Shorting and NFT Markers

Two of Ajna’s most hyped use cases have not gained any traction. I mentioned above why NFT pools have struggled to take off. As for shorting markets, they are also subject to the above issues and have had a difficult time finding willing lenders.

Juiced Pools, Vaults, and Incentivization are Falling Short

While Juiced is successful in attracting a lot of lender deposits, it is failing as a long term driver of Ajna activity and success.

Juiced.app provides incentives on select Ajna pools and builds two products around that. The first is Juiced Vaults, providing lenders with a passive UX that manages their liquidity across multiple incentivized Ajna pools. The second, a permissionless incentivization tool where market creators incentivize pools of their choosing.

The first product could not scale due to the manual nature of vault management, the team is not planning to release any additional vaults. The second product only supports incentivization of vaults. Unfortunately, there is no plan to support permissionless incentives for any Ajna pools.

Contango

Contango decided not to integrate Ajna afterall. Their proposal to integrate Ajna as a source of liquidity for Contango’s perps was approved for a Grant in April. They posted an update on June 6th backing out of the proposal due to changes in their priorities and poor performance of the AJNA token. On June 17th, they refunded the tokens to the treasury.

Lack of Lead Conversion

Out of 132 engaged leads, 8 converted, for a 6% conversion rate. Conversion was 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. Of these engagements most were attempts to start new pools and gain lender deposits. Those conversations usually stalled around finding willing lenders and setting up incentives. I suspect it will be a lot easier to convert after the release of an automated lender position management tool like ARK or once there is an easy tool to incentivize pool usage.

Successes

Despite the challenges, Ajna stakeholders have had several successes: multiple front ends; five additional blockchain network deployments; several tools launched by the community to improve user experience; and a few new verticals are being explored.

Ajna Front End- Ajnafi.com

MOM, the team behind Ajnafi.com, is one of three teams that received AJNA tokens as part of an integration deal. Their frontend application successfully launched alongside the protocol, attracting users by offering Ajna’s full range of functionality, including access to liquidations and claimable reserve auctions.

Ajna Front End - Summer.fi

Summer.fi is another of the three teams that received AJNA tokens as part of an integration deal. Their frontend application launched successfully alongside the protocol, attracting borrowers and lenders with a simplified interface for interacting with Ajna, a Multiply feature that enables users to leverage their positions for increased exposure, and an attractive incentives program. Approximately 70% of Ajna’s TVL comes through Summer.fi.

Lender Front End - Juiced.app

The creators of Juiced.app are another of the three teams that received AJNA tokens as part of an integration deal. Their products attract approximately 80% of Ajna’s lender deposits, demonstrating the power of incentives and a passive lender experience.

Multiple New Deployments

The Ajna Protocol has been deployed on Avalanche, Blast, Filecoin FVM, Mode, and Gnosis Chain thanks to community members and integrators. Ajnafi.com supports these deployments and has several other chains in the queue, including Linea and Binance Smart Chain.

Token Launch Platform - Moon Inc

The creators of Ajnafi.com developed Moon Inc, a token launch platform built on Ajna. The platform enables rug-proof memecoin launches, facilitates trading, and offers non-believers a way to short the memecoins right out of the box. The first version, which went live on Base in June, is very basic. A number of features and upgrades are in the pipeline. This new vertical may bring Ajna an entirely new segment of activity and a significant source of TVL and TVB.

Gnosis Pay Expansion that uses Ajna - Defi Balance Booster

Poolpi from the Juiced team cooked up an interesting project in April. A Gnosispay expansion using DeFi protocols like Safe, Yearn.fi, CoWSwap and Ajna in Gnosischain. Read more about it and watch a demo here. The idea is to enable two use cases; A savings account that mimics rebalancing from saving to checking using yield from Yearn, and a debit account that mimics a credit card that uses the user’s yearn vault as collateral to get a line of credit.

The setup involves users borrowing EURe from Ajna. Try it out here.

Matching Tool - AjnaMatch.com

Ajnamatch.com is a tool that enables borrowers and lenders to share opportunities off-chain so they can find a match on-chain. Visitors to the site can view or submit borrow and lend requests.

Domino Discord Notifications

Domino is a notification tool that enables users to get discord messages about important on-chain events related to Ajna pools and their positions on Ethereum mainnet.

TG Bot Notifications

The community requested a position notification system for those who don't use Discord, and a community member named Perrier provided one that works for Ethereum Mainnet. Perrier is interested in expanding coverage to additional networks.

AjnaJsonified

AjnaJSONified provides a text-only blockchain-sourced data feed in JSON format for each pool pair on Ethereum Mainnet. This reduces the complexity of pulling this data and allows for automation. The site recently became private and requires a paid subscription to access.

Ajnaburn.io

The creator of Makerburn.com created Ajnaburn.io, an aesthetically pleasing data dashboard that displays information about AJNA supply and token burn.

Dune Dashboard - Treebeard - Token

Treebeard’s Dune dashboard provides the community with key data about the AJNA token, namely: price, total supply, fully diluted value, circulating supply, market cap, tokens burned, DEX trades, and distribution through airdrop programs and grants.

Dune Dashboard - GunBoats - Claimable Reserve Auctions

Gunboat’s Dune dashboard provides the community with transaction data related to Claimable Reserve Auctions.

SummerFi Ajna Rewards Calculator & Reserve Auction Calculator

Moneyprintergobrrr created https://ajnarewards.vercel.app/ to calculate reward emissions related to Summer.fi’s AJNA incentive program. The site also contains a reserve auction calculator that helps users see the data for live CRA auction.

Ethena Airdrop

In March, we learned that Ethena included USDe and sUSDe holders who used Ajna in their Shard/ENA airdrop campaign. Unfortunately, the airdrops were not accessible due to a technical issue; users were about to miss out on nearly $40,000 of value. To ensure users received what was rightfully theirs, I reached out to Ethena to coordinate a solution. They were able to reassign the airdrop to another address. I then worked with Summer.fi and Ajnafi.com to push the claimed tokens to Ajna users in accordance with the terms of Ethena’s program. This successful operation resulted in many of those holders staying on the protocol, even until today. The sUSDe/DAI pool is now the fifth largest pool on the Ajna Protocol with over 500k TVL.

Lendvest Permissioned Fixed-Rate Ajna Pools

Lendvest is pioneering a different type of product on top of Ajna, namely a permissioned fixed rate product that is currently in beta.

Statistics

+7.33m TVL
+2.12m TVB
+389     Number of Pools
+9           Number of Blockchains
+11         New Tools or Integrations
+~200    Total Users
+~4000 Twitter Followers
+132       Leads Engaged
+8 Leads Converted

Conclusion

Ajna possesses significant potential with its innovative approach to borrowing and lending, unlocking new possibilities and use cases in DeFi. However, it is facing challenges. The primary issues relate to user experience, particularly for lenders. Lenders are our most critical stakeholders; without them, there would be no activity on the protocol. To achieve product-market fit and fulfill its vision, Ajna must improve UX. The challenges are solvable, and numerous solutions are already in progress, offering positive prospects for the future.

Authorship Credit:
David Utrobin, Business Developer