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DeFi Challenge Highlight: Abracadabra.Cash, DeFi’s Magic Cash Spell Guide


Key Takeaways

  • Abracadabra.Cash is a lending protocol that lets customers deposit interest-bearing property to mint a multi-chain stablecoin referred to as Magic Web Cash.
  • Its lending engine permits for leveraged yield farming by unlocking stranded capital to show what would’ve in any other case been illiquid property liquid.
  • The fully-collateralized and decentralized stablecoin MIM might be discovered on all decentralized exchanges throughout all blockchains.

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Abracadabra.Cash is a lending protocol that permits customers to deposit interest-bearing property 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 property to mint Magic Web Cash.

It sounds esoteric, however in actuality, the concept is kind of easy. Abracadabra’s predominant objective 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 property similar 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 undertaking was born out of the dire want for a decentralized stablecoin that’s higher than the present alternate options—one that’s actually decentralized, gives utility, and is primed for the multi-chain world. “We noticed a possibility to create a stablecoin that’s solely backed by interest-bearing property,” he says. Squirrel believes that Abracadabra’s direct competitor, MakerDAO, has strayed too distant from DeFi’s core values. He explains:

“DAI has change 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 grasp Abracadabra’s financial moat, it’s price taking a look at how common yield farming and traditional decentralized stablecoins operate at this time. With normal yield farming, customers usually deposit or stake liquid property like USDT or SUSHI into yield farms like Yearn or Sushi. In trade, customers obtain illiquid interest-bearing tokens similar to yUSDT and xSUSHI that basically signify “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 property 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, however, 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 property liquid. Explaining the probabilities Abracadabra unfolds, Squirrel says:

“With Abracadabra, customers can leverage up their liquidity supplier positions to earn extra charges. After all, there’s a threat that comes with that, particularly the danger of liquidation, however it’s nonetheless a very new means of market-making within the decentralized world.”

To raised perceive Squirrel’s level, contemplate the next yield farming technique. Suppose a person desires 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 person can now take these interest-bearing yvUSDT tokens and use them as collateral to take out a mortgage on Abracadabra. Since these tokens successfully signify $10,000 price of staked stablecoins, the curiosity or the fee for taking out this mortgage is roughly 0.8% a 12 months and the person can borrow as much as 90% of their worth. 

Supply: Abracadabra.Cash

This implies the person earns 2.1% APY on their deposit, takes out a mortgage costing 0.8% of the 12 months, and receives 90% of his authentic worth in MIM. This implies he has $9,000 price of liquid capital in MIM and nonetheless makes 1.3% APY on his authentic deposit. 

The person might even proceed leveraging his place as much as 10 instances with Abracadabra’s lending engine. Within the background, the protocol will trade 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 Know-how to supply remoted lending markets that allow customers to regulate their threat tolerance in line with 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 person 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 stated pool primarily based on the specified leverage.”

Popsicle Finance is a multi-chain yield optimization platform for liquidity suppliers constructed by the identical skilled crew 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 concentrate on it, to be a correct market maker, you want a dependable place the place you may borrow, and a stablecoin that’s accessible in all places. Abracadabra gives each. The lending platform permits customers to create any remoted threat 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 specific liquidity supplier pairs or different liquidity mining applications to make sure deep liquidity for the undertaking’s markets. The token emissions observe a ten-year halving mannequin the place SPELL rewards are lower in half yearly. Most not too long ago, the crew made a proposal to cut back the farming incentives by 20% and as an alternative burn these SPELL tokens.

Moreover, SPELL might 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. All the 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 undertaking 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 truly 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 neighborhood.

The Future for Abracadabra 

Abracadabra’s roadmap plans embrace automating liquidations, creating extra utility for MIM, and increasing throughout the whole 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 crew, which is much from being probably the most optimum or equitable course of. Nevertheless, Squirrel says that Abracadabra is at the moment working with one other undertaking on an answer to automate liquidations. He explains: 

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

Apart from that, Abracadabra desires to present MIM extra utility and make it the most important decentralized stablecoin within the house. This implies integrating extra collateral property, increasing to extra chains, and constructing a powerful and dependable neighborhood. “We’re by no means going to cease. If there are customers on a unique chain or a decentralized trade, there’s no cause for us to not be there,” explains Squirrel.

In conclusion, Abracadabra is an formidable undertaking constructing a superior product that’s making an attempt 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 undertaking is rising signifies that Abracadabra has discovered the proper 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 function held ETH and xSUSHI.

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

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