How Yearn & Curve users can benefit from abracadabra.money and its ‘magic internet money’ $MIM

The aims of this article are (1) to explore what abracadabra.money is and how it works, (2) which ecosystem abracadabra anticipates to set up and what it means for Yearn & Curve participants, (3) how $MIM maintains peg, and (4) which actors can benefit from abracadabra.money and how (incl. target group oriented instructions).

This article is targeted towards:

  • Yearn.Finance
  • Yearn users currently providing USDC, USDT, YFI & ETH
  • Users that hold assets eligible to be used as collateral on abracadabra.money (e.g. xSUSHI; soon $OHM, $sFTM — please check website)
  • Curve.fi 3CRV providers
  • Curve.fi veCRV holders
  • SPELL /sSPELL holders

Introduction: abracadabra.money

With abracadabra.money, you can provide collateral in the form of various interest bearing crypto assets such as yvYFI, yvUSDT, yvUSDC, xSUSHI and more. With this, it is possible to borrow ‘magic internet money’ ($MIM) which is a stable coin that you can swap for any other traditional stable coin. This is the truest form of a decentralized stable coin that differentiates itself from centralized stables such as USDC & USDT.

Abracadabra.money differentiates itself from other lending projects by offering very low, stable interest rates, as well as a 1-click leverage/deleverage capability.

This key feature of abracadabra.money & $MIM, leveraged yielding positions, works as follows: (1) You own 100 USDC. (2) You deposit 100 USDC on yearn to obtain 100 yvUSDC and receive 7.5% APY. (3) You deposit these 100 yvUSDC on abracadabra and receive 90 MIM. (4) You buy 90 USDC with this 90 MIM. (5) You deposit 90 USDC on yearn to obtain 90 yvUSDC and receive another 7.5% APY. (6) You deposit 90 yvUSDC on abracadabra and receive 81 MIM.. and you do several such loops, and in every loop you receive further 7.5% APY on your investment. abracadabra.money allows you to do that in 1 single transaction. With 10 loops you can increase your APY from 7.5% to 41%.

Illustration from: https://0xwicked.medium.com/a-new-chapter-in-the-spellbook-6827c65f5350 (data from 08.15.21, using 10x Loop and max LTV. APY may vary)

(One remark: Please consider that for simplicity purposes I will not include slippage in the calculations. I will also assume that 1 USDC = 1 yvUSDC. Consider calculations as illustrative.)

How to create & maintain balance between MIM & 3CRV in the MIM-3CRV Curve pool

In order to build trust in $MIM and increase overall supply & usage of $MIM, it is crucial to maintain peg (meaning that 1 $MIM should always be worth around 1 USD). There are many factors in play to achieve this but one very crucial one is to maintain an equilibrium between MIM and 3CRV in the MIM-3CRV Curve pool: https://curve.fi/mim

Two metrics are important: (1) Create & maintain balance between MIM & 3CRV and (2) increase the total supply overall

MIM: Drivers & barriers of MIM supply in MIM-3CRV Curve pool:

  • Amount & depth of provided collateral cauldrons: The more collateral options abracadabra users have & the deeper those cauldrons are, the more inclined (or rather: able) are they to borrow $MIM and provide it to the pool. → Positive correlation
  • Interest rate to borrow $MIM: The lower the interest rate is to borrow $MIM, the more inclined are users to borrow $MIM and provide it to the Curve pool. → Negative correlation
  • Liquidation fee: The lower the liquidation fee, the higher the willingness to borrow $MIM and provide it to the Curve pool. → Negative correlation
  • Net APYs of yVault positions on yearn.finance: The higher net APYs of those positions are, the more attractive are leveraged yield positions by abracadabra, therefore increasing $MIM in the Curve pool. → Positive correlation.
  • $MIM utility outside Curve pool: The higher the utility outside the MIM-3CRV Curve pool is, the less people decide to provide $MIM to this pool. Measures on how to increase utility could & will include $MIM farms on Ethereum, Fantom, Binance Smart Chain & Polygon (incl. cross-chain arbitration opportunities). → Negative correlation.

3CRV: Drivers & barriers of 3CRV supply in MIM-3CRV Curve pool:

  • Rewards: CRV and CVX rewards play a key role in the abracadabra ecosystem. Since it is very attractive to yield leverage through abracadabra.money (which creates and sells MIM for 3CRV in the MIM-3CRV pool), the supply of MIM will — theoretically — always seek to go to infinity if not restrained by external measures (e.g. amount of cauldrons, see above). In order for MIM to maintain its peg, it needs to attract an equal amount of 3CRV deposits as for each leverage trade, abracadabra buys a 3CRV token with MIM to purchase the desired token leverage. The CRV and CVX rewards incentivize 3CRV depositors who perhaps don’t want to take on the risk of liquidation allowing more MIM to enter the market without slipping the peg.

The ecosystem of abracadabra.money (illustrated)

In the following illustration I have mapped the most important players in the abracadabra ecosystem, as well as process steps & available options to all actors:

I am sure now you hope there will be a ‘TL;DR’ at the end of this article. There won’t.

Please follow me along the process steps:

  1. A user own 100 USDC and wants to make the most bang for her buck. She informs herself about yearn.finance and decides to deposit her hard-earned money
  2. She deposits 100 USDC on yearn.finance and receives 100 yvUSDC. On that 100 yvUSDC she will receive net APY of 7.5%. She is happy.
  3. She reads about abracadabra.money and decides to borrow MIM for her 100 yvUSDC. She has several options: Using abracadabra’s leveraged yield position feature, or spending MIM otherwise (e.g. farming SPELL on abracadabra, or farming it elsewhere on e.g. Fantom or Polygon)
  4. She decides to use leveraged yielding positions. She is risky and decides for a risky liquidation price and 10 loops. Now the magic of abracadabra comes into play:

4.1. Abracadabra takes the 100 yvUSDC (on which the user still gets 7.5. net APY) and borrows 90 MIM.

4.2. These 90 MIM are used to buy 90 USDC from the MIM-3CRV Curve pool

4.3. These 90 USDC are deposited on yearn.finance to receive 90 yvUSDC

4.4. These 90 yvUSDC are used as collateral to borrow 81 MIM

4.5. … 4.X. These loops are repeated up until 10x

These loops always add another yvUSDC position on yearn.finance, leading to a much higher net APY for the user. With every loop (1) yearn.finance TVL increases, (2) trade volume on MIM-3CRV pool increases and (3) supply of $MIM increases.

Instead of using loops, the user can also borrow MIM to farm Spell on abracadabra.money (process step 5)

3CRV providers have several incentives to participate in the MIM-3CRV pool as they can farm CVX on Convex Finance (process step 6), farm SPELL on abracadabra.finance (process step 7) AND receive high CRV rewards in the pool itself (process step 8)

These high CRV rewards are increased if parties profiting from abracadabra use the newly implemented bribe system (bribe.crv.finance) to bribe veCRV voters to increase rewards in the MIM-3CRV pool.

Who benefits from abracadabra.money & how he/she should act to make use of $MIM advantages

In the following, I will explore who will benefit from the mechanism explained above, and how he/she should act to best use it for his/her advantage:

  • Yearn.Finance: As leveraged yield positions by abracadabra will use the borrowed $MIM to acquire USDC (or other tokens; via Curve) and then obtain yvUSDC on yearn.finance, the TVL on yearn will significantly increase (approx. 6.5x in the respective vaults if MIM is looped 10x). It is in the interest of yearn to support this. Yearn can use its voting power on https://dao.curve.fi/gaugeweight to increase rewards for the MIM-3CRV pool to incentivize 3CRV providers to enter the pool (and as it was explained above, this is the limiting factor of MIM supply).
  • Yearn users currently providing USDC, USDT, YFI & ETH: As it was shown above, it is always more favorable to make use of abracadabra’s leveraged yielding positions instead of ‘just’ keeping the yVault position idle. Go to https://abracadabra.money/stand and see whether you can borrow $MIM for your yVault position. The same is true for users that hold assets eligible to be used as collateral on abracadabra.money. They as well should check regularly whether they can yield leverage their positions.
  • Curve.fi 3CRV providers: 3CRV providers on the MIM-3CRV Curve pool (https://curve.fi/mim) are eligible to farm $SPELL on https://abracadabra.money/farm-stand. Furthermore, they currently receive above-average $CRV rewards. Also, they are eligible to receive $CVX rewards.
  • Curve.fi veCRV holders: veCRV holders are incentivized to vote for the MIM pool on https://dao.curve.fi/gaugeweight through bribes set up on https://bribe.crv.finance/. Currently, 150,000,000 $SPELL & approx. 4,000 $FTM are put up as bribe to incentivize veCRV holders to vote for the MIM pool. It is very likely that abracadabra.money will continuously provide bribes to ensure that rewards for the MIM pool remain high, incentivizing 3CRV providers to remain in or enter the pool. At the moment, there is no dashboard on how to track rewards. I advise to follow https://twitter.com/MIM_Spell and myself https://twitter.com/alexandomega to receive info when bribes are set up.
  • SPELL / sSPELL holders: As the utilization of $MIM will increase significantly, sSPELL holders will receive more fee rewards, increasing the overall value of SPELL. SPELL is currently only available at SushiSwap. SPELL holders should stake at https://abracadabra.money/spell-stake, sSPELL holders can lay back and watch abracadabra grow.

Outlook

It is very likely that the above-illustrated ecosystem will evolve and grow, especially if $MIM peg is maintained and new cauldrons are released. Plans to enable MIM pools on FTM & Polygon are underway. The vote on https://dao.curve.fi/gaugeweight looks promising and everyone is invited (and incentivized through bribes!) to vote for the MIM pool to increase rewards for 3CRV providers. I am sure in the initial weeks & months of this project the abracadabra team has to balance out the provided supply of $MIM with the 3CRV supply in the MIM-3CRV Curve pool, but the more utility $MIM receives outside this mechanism, the more autonomous $MIM will become as the next major decentralized stable coin.

I can recommend reading the latest medium post of 0xwicked on abracadabra and its next steps: https://0xwicked.medium.com/a-new-chapter-in-the-spellbook-6827c65f5350

If you have any questions, please feel free to join the $SPELL Discord channel.

Update: https://twitter.com/Ceazor7 recently uploaded a video on abracadabra.money in which he explores abracadabra like I did in this article. It also touches on advantages for other protocols (such as CREAM). Have a look: https://www.youtube.com/watch?v=7togDGOac_E

Thanks!

And that is it (for the moment). I hope this article was helpful to you. I am always amazed by what DeFi professionals come up with. If you want, you can follow me at https://twitter.com/alexandomega. I usually tweet about new & established projects on Fantom, but sometimes I explore DeFi related projects such as abracadabra.money as well.