In 2022, there are many ways to profit from digital assets. The list includes staking, lending, farming, and other methods. All these options bring users passive income and provide financial freedom. Usually, users utilize several DeFi protocols at once to maximize their revenue. But today, in our review, there is a project that can become a link that allows users to earn a yield on yield using tokens that would otherwise dust in the bins of their wallets. Magic, isn’t it? So fill up your magic carpet. We are going on a trip to Abracadabra.
What Is Abracadabra.money?
Abracadabra.money is a unique crypto lending protocol that helps users get the maximum benefit from DeFi. The protocol allows users to borrow a native MIM (Magic Internet Money) stablecoin using interest-bearing tokens (ibTKNs) as collateral.
Let’s explain it more clearly. Many DeFi protocols, such as Sushi, Yearn Finance, or Curve, are to date.fi, allow users to earn passive income by depositing tokens. For example, users can deposit their SUSHI tokens into the SushiBar staking pool and receive xSUSHI tokens that display their share in the pool and the holding of which allows users to earn 0.045% of all swaps fees. Or, users can make a profit by depositing ETH tokens (which are subsequently converted into WETH (Wrapped Ether)) in the Yearn.Finance Vault and receive yvWETH tokens, which serve as a kind of “receipt”. Both xSUSHI and yvWETH are illiquid. That is, they cannot be used in any way except as holding. This is where the Abracadabra.money comes into play and helps users to make illiquid tokens liquid and unleash the full potential of the interest-bearing tokens. The protocol selects the most reliable interest-bearing tokens, which are likely to continue to grow in price, thus improving users’ profit. When writing, users can use more than 25 illiquid tokens from different networks (Ethereum, Binance Smart Chain, Fantom, Avalanche, or Arbitrum L2) as collateral for borrowing MIM. In addition to lending, platform users can also leverage their interest-bearing tokens position. But first things first.
The “Borrow” section allows users to deposit ibTKNs tokens to borrow MIM stablecoin. To do this, it is enough for the user to select the desired network, select the “Collateral Asset,” and configure the details of the position. Thus, users specify the amount of interest-bearing tokens they want to use as collateral and how many MIM stablecoins they wish to borrow. After that, users will see the position parameters. In addition to the self-set parameters, such as the amount of collateral in the position and the number of borrowed MIMs, the user will see:
- Collateral Value. The current value of the deposit. For example, if you deposit 100 xSUSHI tokens, which at the time of writing are trading at $1.99, then your Collateral Value is $199.
- Liquidation Price. This is the critical price of the collateral, the achievement of which provokes the liquidation of the collateral. For example, your position will be liquidated if the Liquidation Price is $1.5 xSUSHI and the token price reaches or falls below $1.5. Usually, bots act as liquidators. They repay the user’s MIM debt and pocket deposited ibTKNs. The crucial point is that after liquidation, the user does not lose borrowed MIMs and does not have to repay the debt.
- Maximum Collateral Ratio. This parameter displays the maximum amount of debt that can be borrowed using a particular interest-bearing token.
- Liquidation Fee. The parameter indicates what discount the liquidator receives when buying out a position. For example, if the liquidation price of $1.5 is reached and the liquidation fee is 5%, then the liquidator can buy the deposited collateral tokens, not for $150 but $142.5.
- Borrow Fee. As the name implies, this is a fee that is imposed in case of opening a position. For example, if you decide to borrow 100 MIM and the fee is 5%, you must deposit 100.5 MIM to repay the debt.
- Interest. This parameter displays your annual collateral interest, that is, the amount by which your debt increases yearly.
- Price. Indicates the current price of the selected interest-bearing token. In our example, the current price of xSUSHI is $0.99.
- After opening a position, the protocol deposits MIM tokens to your wallet. In the “Positions” section, you can repay your debt and withdraw deposited tokens (which, by the way, most likely increased in price).
Leverage Interest-Bearing Tokens Positions
The Abracadabra.money team has built an easy-to-use feature that allows users to leverage their interest-bearing tokens. The essence of the leverage yield function is as follows:
- The user selects and deposits the desired interest-bearing token, for example, the same xSUSHI.
- The protocol automatically calculates the optimal LTV, but the user has the right to increase this parameter. Increasing LTV results in high risk and a Liquidation Price increase.
- Depending on the selected leverage, the protocol lends the appropriate amount of MIM stablecoin.
- Borrowed MIM tokens are converted into SUSHI tokens.
- SUSHI tokens are automatically deposited into the SushiBar staling pool to receive xSUSHI.
- xSUSHI tokens are entered back into the protocol to provide collateral for the user position. At the same time, the user receives more income from xSUSHI staking.
All the listed actions occur automatically in one transaction, so the user is only required to pay the gas fee. After setting all the parameters, the user can see the details of the leverage position:
- MIM Borrowed. This parameter specifies the MIM amount that will be borrowed and used for converting into SUSHI tokens and further process.
- Liquidation Price. The price at which the user’s position will be liquidated. In this case, users lose all their assets.
- Collateral Deposited. The amount of xSUSHI tokens that the user plans to deposit.
- Collateral Value. The borrowed value of the deposited collateral.
You can choose between two ways for position closing. First, you can simply repay the borrowed MIM amount. Or you can use the “Deleverage” function. In the second case, you do not need to have MIM tokens in your wallet to repay the debt. You just need to specify what amount of xSUSHI you want to withdraw and the amount of MIM tokens you wish to repay. The protocol withdraws xSUSHI from the SushiBar staking pool and converts them into SUSHI tokens, which are then converted into MIM tokens and used to repay the debt. At the same time, you receive the amount of your initial deposit and the profit earned.
In the “Positions” section, you can track your open positions, change networks, and repay or deleverage positions. Also, if you have opened farming positions, you can manage them in this section: claim rewards, check the amounts, or withdraw LP tokens. In addition, you can monitor the following information:
- MIM Borrowed. This parameter displays the total amount of MIM tokens you owe to the protocol.
- Collateral Deposit. Indicates the total price of all interest-bearing tokens deposited by you.
- SPELL Farmed. Indicates the amount of SPELL (second project’s token) farmed in Arbrakadabra.money farms.
By clicking on the “Staking” button, you are shown two staking methods, thanks to which you can earn a part of the fees collected by Abracadabra.money:
- sSPELL. This pool allows users to deposit SPELL tokens to get more SPELL. After you have deposited SPELL tokens, you receive sSPELL tokens representing your share in the pool and giving you voting power. Note that once you staked SPELL tokens, you will not be able to unstake them earlier than in a day. The sSPELL pool is replenished with interest and borrow fees and 10% of the liquidation fee for some markets. The collected fees are distributed among sSPELL holders according to their share in the pool. The approximate APR is calculated based on the annual protocol’s revenue for the last month.
- mSPELL. This staking pool is available on several networks, such as Ethereum, Arbitrum, Avalanche, and Fantom. The essence is the same as in the previous version. The user deposits SPELL tokens and receive part of the fees, but the income is accrued in the MIM stablecoin. You can harvest income anytime by clicking on the “Claim” button.
- The “Market” section is divided into two areas. The “Borrow” area presents all the interest-bearing tokens the user can use as collateral, and the total amount of MIM borrowed using a specific token. The user can also see the MIM amount available for borrowing using each specific token (as soon as this number reaches 0, users will no longer be able to use this token as collateral), as well as the interest and liquidation fee for each component. The “Farm” section provides users with the available farming options with which users can deposit their LP tokens into the staking pools and earn SPELL. At the time of writing, only one ETH-SPELL farming pool is active, with a TVL of $1,293,027 and an annual ROI of 70.76%.
- The “Bridge” section allows users to transfer MIM tokens from one network to another seamlessly. Thus, users can transfer MIM tokens from their native Ethereum network to the Avalanche, Binance Smart Chain, Fantom, or Arbitrum L2 networks. Depending on the destination chain, the maximum and minimum amount of tokens that can be transferred and the bridging fee differ.
- By clicking on the “Swap” button, the protocol will automatically redirect you to the Curve.fi website where you can swap your MIM tokens to USDT, DAI, or USDC.
Surely you have already noticed that the described protocol has three tokens: MIM stablecoin, SPELL token, and sSPELL token. 75% of the income received by Abracadabra.money is used to buy back SPELL tokens, while 25% is sent to the project’s treasury.
- SPELL token has a total supply of 210 billion. The token is used to reward users for providing liquidity or staking. 63% of the total token supply is allocated for farming incentives, 30% of SPELL will be vested for four years among the team, and 7% of tokens were distributed via IDO.
- MIM is a stablecoin pegged to the US dollar and backed by ibTKNs. The token is minted by nine multi signs representing various DeFi protocols, such as Yearn Finance, Curve Finance, Abracadabra.money, and others. MIM tokens enter circulation only after the deposit is made.
Arbitrage helps to maintain the USD peg. For example, borrowers who have discovered that MIM is trading below $1 can take the opportunity to buy a token at a discount to repay the debt partially. As demand grows, the MIM price rises to $1. On the other hand, holders of interest-bearing tokens may find that the MIM is trading above $1. In this case, they can open a position and borrow MIM for further sale. As a result, demand falls and the price, respectively, too. Or users who notice a deviation from the pegging can use it for personal gain. For example, if MIM is trading below $1 in some market, the user can buy some tokens and sell them in another market where MIM is trading at $1.
Abracadabra.money is a magic project that helps users put into work their illiquid tokens to generate additional income. The protocol has several partnerships with well-known crypto projects, allowing it to build a sustainable and robust ecosystem. Moreover, Abracadabra.money is blockchain agnostic, allowing users to benefit from using various ecosystems. In addition to the protocol's utility to illiquid tokens, it also enables stakeholders to earn part of the collected fees and participate in the project’s fate.