DeFi Project Spotlight: Abracadabra.Money, DeFi’s Magic Money Spell Book

Abracadabra.Cash is a lending protocol that permits customers to deposit interest-bearing belongings as collateral to borrow a stablecoin referred to as Magic Web Cash that can be utilized throughout a number of blockchains.

Abracadabra.Cash Defined

Abracadabra.Money is a multi-chain lending protocol using interest-bearing belongings to mint Magic Web Cash.

It sounds esoteric, however in actuality, the concept is kind of easy. Abracadabra’s important aim is to unlock what would have in any other case been stranded capital in DeFi to empower customers to yield farm with leverage. The protocol achieves this by permitting customers to deposit interest-bearing belongings corresponding to Ethereum, USDT, or USDC deposited in Yearn.Finance’s swimming pools as collateral to borrow or mint a U.S. dollar-pegged stablecoin referred to as MIM. 

Abracadabra’s co-founder, who goes by the alias Squirrel, says the concept for the mission was born out of the dire want for a decentralized stablecoin that’s higher than the present options—one that’s really decentralized, offers utility, and is primed for the multi-chain world. “We noticed a chance to create a stablecoin that’s solely backed by interest-bearing belongings,” he says. Squirrel believes that Abracadabra’s direct competitor, MakerDAO, has strayed too far-off from DeFi’s core values. He explains:

“DAI has develop into a really unattractive stablecoin. We have been followers when it was Ethereum-collateralized, however at this stage, DAI is 60% collateralized by USDC. A supposedly decentralized stablecoin that’s primarily collateralized by a centralized stablecoin—it’s ridiculous.”

To know Abracadabra’s financial moat, it’s price how common yield farming and standard decentralized stablecoins operate immediately. With customary yield farming, customers sometimes deposit or stake liquid belongings like USDT or SUSHI into yield farms like Yearn or Sushi. In alternate, customers obtain illiquid interest-bearing tokens corresponding to yUSDT and xSUSHI that basically characterize “receipts” to retrieve the unique deposits together with any accrued yield. In different phrases, liquid tokens go in, and illiquid interest-bearing tokens come out.

Conversely, minting a standard decentralized stablecoin like DAI requires depositing liquid belongings like Ethereum or USDC as collateral to get liquid stablecoin tokens like DAI out. Which means liquid tokens go in, and liquid tokens come out.

Abracadabra, alternatively, combines the 2 approaches. It lets customers deposit illiquid interest-bearing tokens like yUSDT and xSUSHI as collateral to mint a liquid asset: MIM. This opens up leveraged yield farming alternatives by unlocking stranded capital or making what would’ve in any other case been illiquid belongings liquid. Explaining the chances Abracadabra unfolds, Squirrel says:

“With Abracadabra, customers can leverage up their yiled farming positions to earn extra charges. After all, there’s a danger that comes with that, specifically the chance of liquidation, however it’s nonetheless a totally new approach of market-making within the decentralized world.”

To raised perceive Squirrel’s level, take into account the next yield farming technique. Suppose a consumer needs to earn curiosity on $10,000 in stablecoins. One factor they might do is deposit 10,000 USDT into the Yearn USDT Vault, at the moment yielding round 2.1% internet APY. The depositor will obtain yvUSDT tokens, that are successfully “receipts” for staking or interest-bearing tokens representing the staked deposit.

The consumer can now take these interest-bearing yvUSDT tokens and use them as collateral to take out a mortgage on Abracadabra. Since these tokens successfully characterize $10,000 price of staked stablecoins, the curiosity or the associated fee for taking out this mortgage is roughly 0.8% a yr and the consumer can borrow as much as 90% of their worth. 

This implies the consumer earns 2.1% APY on their deposit, takes out a mortgage costing 0.8% of the yr, and receives 90% of his unique worth in MIM. This implies he has $9,000 price of liquid capital in MIM and nonetheless makes 1.3% APY on his unique deposit. 

The consumer might even proceed leveraging his place as much as 10 occasions with Abracadabra’s lending engine. Within the background, the protocol will alternate the MIM tokens again to USDT, deposit them into Yearn for the two.1% APY, use the yvUSDT LP tokens to borrow extra MIM, and repeat the method till the specified leverage is achieved. That is completed routinely and permits for a $10,000 deposit to earn yield on the equal of $100,000 minus mortgage curiosity charges. 

Synergy with Popsicle Finance

Within the background, Abracadabra makes use of Sushi’s Kashi Lending Expertise to offer remoted lending markets that allow customers to regulate their danger tolerance based on the collateral they determine to make use of. The lending engine performs off synergies with different DeFi protocols to permit for some highly effective yield farming methods. Squirrel explains:

“Within the close to future, we will leverage liquidity offering on Popsicle Finance utilizing Abracadabra. For instance, a consumer picks a buying and selling pair on the Popsicle automated market maker, say ETH/USDT, deposits the funds into the pool, and picks a leverage degree. Then we use the Abracadabra Degen Field engine the place the preliminary ETH/USDT LP tokens get deposited, routinely borrow MIM towards the LP tokens as collateral, after which use the borrowed MIM to buy and deposit extra ETH/USDT again into the mentioned pool primarily based on the specified leverage.”

Popsicle Finance is a multi-chain yield optimization platform for liquidity suppliers constructed by the identical skilled staff behind Abracadabra. Its imaginative and prescient is to be the market maker of DeFi—a protocol that optimizes liquidity offering throughout all chains and decentralized exchanges. To do this, Squirrel says, Popsicle wanted a separate however synergistic protocol like Abracadabra. He explains:

“If you consider it, to be a correct market maker, you want a dependable place the place you may borrow, and a stablecoin that’s out there in every single place. Abracadabra offers each. The lending platform permits customers to create any remoted danger lending market they need, and with MIM being that multi-chain stablecoin, we will simply shift liquidity throughout ecosystems.”

MIM goals to be the decentralized stablecoin for the multi-chain world. By leveraging the AnySwap cross-chain protocol, customers can at the moment switch MIM from Arbitrum to Fantom inside 10 minutes. The stablecoin already runs on all decentralized exchanges throughout all blockchains, sidechains, and Layer 2 protocols. “MIM is the one stablecoin that at the moment does that,” says Squirrel.

Tokenomics and Governance

Abracadabra has two tokens: MIM, the USD-pegged multichain stablecoin, and SPELL, the protocol’s utility and governance token used for fee-sharing and incentivization.

The SPELL token has a complete provide of 210 billion cash, 63% of that are used to incentivize explicit liquidity supplier pairs or different liquidity mining applications to make sure deep liquidity for the mission’s markets. The token emissions comply with a ten-year halving mannequin the place SPELL rewards are minimize in half yearly. Most not too long ago, the staff made a proposal to scale back the farming incentives by 20% and as a substitute burn these SPELL tokens.

Moreover, SPELL will be staked within the Wizard Dashboard to acquire sSPELL tokens, used for fee-sharing within the SPELL staking pool and governance of the Abracadabra DAO. The entire charges the protocol makes from curiosity, borrow, and liquidation charges are distributed within the SPELL single-sided staking pool within the type of SPELL tokens, at the moment yielding round 25% APR.

Abracadabra’s governance occurs by a snapshot web page the place sSPELL and SPELL/ETH Sushiswap liquidity supplier token holders could make or vote on protocol enchancment proposals. To that finish, constructing a community-driven mission by decentralized governance is paramount for Abracadabra. 

Abracadabra and its affiliated tasks Popsicle Finance and Wonderland Cash kind a part of a bunch of fast-growing DeFi tasks referred to as Frog Nation. Supporters of the tasks, together with Squirrel and Daniele Sestagalli, one other of Abracadabra’s co-founders, not too long ago launched a social media marketing campaign underneath the hashtag #OccupyDeFi to unfold the phrase about its mission.

“For us, #OccupyDeFi is all about specializing in really creating decentralized finance, and never this semi or quasi-decentralized finance,” says Squirrel, arguing that different DeFi protocols have succumbed to VCs and establishments at the price of decentralization and the broader group.

The Future for Abracadabra 

Abracadabra’s roadmap plans embrace automating liquidations, creating extra utility for MIM, and increasing throughout all the DeFi universe. 

Liquidations on Abracadabra at the moment aren’t computerized, and customers can’t bid or compete to liquidate different debtors’ collateral. As a substitute, liquidations are at the moment dealt with manually by the staff, which is much from being essentially the most optimum or equitable course of. Nevertheless, Squirrel says that Abracadabra is at the moment working with one other mission on an answer to automate liquidations. He explains: 

 “We wish to introduce a pool the place customers can deposit funds, have that pool routinely liquidate sure positions primarily based on alerts, after which share the income from the liquidation charges with the depositors.”

Apart from that, Abracadabra needs to offer MIM extra utility and make it the most important decentralized stablecoin within the area. This implies integrating extra collateral belongings, increasing to extra chains, and constructing a powerful and constant group. “We’re by no means going to cease. If there are customers on a special chain or a decentralized alternate, there’s no motive for us to not be there,” explains Squirrel.

In conclusion, Abracadabra is an formidable mission constructing a superior product that’s attempting to fill what appears to be an actual hole within the market-making and stablecoin nook of decentralized finance. The unbelievable tempo at which the mission is rising signifies that Abracadabra has discovered the right product-market match. “The frog nation will win,” Squirrel concludes. For him, the battle to maintain DeFi, open, decentralized, and censorship-resistant has solely simply begun.

Disclosure: On the time of writing, the writer of this characteristic held ETH and xSUSHI.

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