Abracadabra.Money: Understanding #OccupyDeFi $MIM $SPELL
If there’s a vision, sometimes we have to take responsibility to build it for ourselves. A group behind the whole ecosystem of projects that have taken the DeFi world by storm has taken it upon themselves to build out their vision of decentralized finance.
One of these projects in the ecosystem, Abracadabra.Money, is changing how lending happens in the DeFi space. It is growing rapidly, reaching almost $5B Total Value Locked in its protocol within five months. What’s even more impressive is that it’s quickly catching up to its bigger brother, MakerDAO, despite being a relatively recent project.
The Co-Founder of Abracadabra.Money, Daniele Sesta, is leading the group spearheading the movement of #OccupyDeFi. The movement is making a lot of waves within the crypto community and thus, attracting attention towards the Frog Nation. Frog Nation is the name given to the group of projects that all have this vision and movement in mind. This article focuses on the larger project in the Frog Nation, Abracadabra, and its native token $Spell and stablecoin $MIM.
Why frog? Frogs don’t drink water. They absorb it through their skin. The Frog Nation projects similarly are absorbing all types of capital and assets, all at the same time, and still serving everyone equally in its protocols.
What IS #OccupyDeFi Exactly?
Simply put, it’s the vision of truly decentralized finance. One where everyone’s capital is treated equally and be able to use their resources as they’d like — free from the control and manipulation of VCs and centralization from traditional finance types. Basically, free from the people that only want to profit from it.
Abracadabra and the rest of the Frog Nation projects pretty much all operate by these three principles:
- Financial freedom: taking control of how one uses their resources.
- Frictionless operation: bringing the protocol to as many chains as possible.
- Growing together: as the project gains adoption, the users participating in it also benefit.
1. Freedom to Choose How You Use Your Money
Abracadabra fits into this vision because it’s focused on building a fully decentralized, cross-chain stablecoin. The protocol allows users to simultaneously earn interest on your crypto assets and borrow against to mint $MIM (Magical Internet Money), its own stablecoin.
Another stablecoin, you might ask? Well, considering that most current stablecoins are centralized, even DAI from MakerDAO (which is now almost half backed by USDC), there’s a need for alternatives.
Abracadabra enables users to get loans that pay themselves. It works because it allows them to borrow against the crypto assets sitting there idle but getting yield (yield bearing-tokens). For example, those who deposited tokens into Yearn finance, staking on OlympusDAO for those ridiculous APYs, and potentially even our own soon-to-be-launched token $BRC (a stablecoin-like asset that is designed to increase in price!), can borrow against their assets to receive $MIM. In most cases, the fees or interest associated with borrowing against the user’s yield bearing-tokens are much lower, thus effectively borrowing “free” or “magic” internet money.
The $MIM received can then be used for anything afterward, such as exchanging it for USDC or purchasing more of the asset they’re holding for an increased yield. As such, it’s exceptionally capital-efficient, allowing users to free up liquidity to do as they want.
2. Freedom From Network Limitations
It’s Abracadabra’s goal for $MIM to become the default decentralized stablecoin of all DeFi. There’s an ever-growing number of chains and assets available, so operating cross-chain is a priority to achieve that goal. This not only makes the protocol easier to use but more stable, safe, and trustworthy.
Each collateral has an independent market on Abracadabra. Meaning it allows users to borrow (and mint $MIM) against a multitude of different tokens. When compared to a traditional DeFi lending market, users have more control and flexibility over their collateral and the protocol can operate without worrying about high-risk assets. Thus, any tokens or assets in one lending market have no effect on the risk of assets in another lending market since each market has its own independent debt.
Being free from networks includes being free from the legacy networks of the fiat system. As mentioned before, almost all stablecoins are centralized and still pegged to the US dollar. This makes them vulnerable to inflation and censorship. Thus, being available to all types of assets and chains make $MIM much more decentralized than its other stablecoin competitors.
3. Create and Return Value For Users Of The Protocol
Creating a great project or protocol is one thing, but to sustainably keep the project relevant is another. It’s why all of the projects aim to provide the services or functionality to the users with reasonable fees that return value to the people using it.
This is the stark difference between Abracadabra and its more well-known competitor, MakerDAO. As users deposit, borrow and transact through Abracadabra to be issued $MIM, the protocol generates revenue shared with the users staking its native token $SPELL. There is no such revenue or fee-sharing model for Maker. Therefore, Abracadabra has already surpassed MakerDAO in terms of revenue and, soon, total market cap.
In more detail, $sPELL (staked $SPELL) has several benefits:
- Voting rights for the development of the protocol.
- Claim on fees generated by the protocol. The fees are mostly from interest on borrowed MIM. From the fees collected, 75% are used to purchase $SPELL tokens that go to $sPELL holders (the stakers)!
- Staked $SPELL can be borrowed against and mint more $MIM!
Abracadabra Strategies: Conjuring Up Some Magic Internet Money!
The vision and philosophy behind #OccupyDeFi are great but how exactly can users use the Abracadabra platform to increase their return on investment? Since most users are not borrowing for the sake of borrowing, there are a few common strategies that most are employing to increase the yield on their assets (of course, with some extra risk).
Strategy 1: Leveraged Stablecoin Yield Farmer
Users can continuously do this process manually or automatically loop it from the Abracadabra website up to 10 times (quickly levering up). For example, doing this 5 times at 90% LTV each time, gives an expected APY of 47.6377% on your USDC compared to just ~10% with no borrowing! That’s a pretty amazing yield just from a stablecoin!
- In general, this strategy is probably the safest because of the nature of stablecoins. Stablecoins don’t fluctuate in price much, thus, this strategy is a good fit for risk-averse people. Even at 5x, at the current market conditions, the expected liquidation price for USDC is approximately $0.9493, which it has never reached. So as long as USDC doesn’t lose its dollar peg, users are able to lever up (reasonably) without much risk.
Strategy 2: More $MIM for Larger Rebases
- OlympusDAO is one of the protocols that has started the DeFi 2.0 narrative (check out our article reviewing it!), thus, a lot of eyes are on it. OlympusDAO has an astronomically high APY when compared with early DeFi projects through its rebase system. As such, there are always going to be people that try to maximize their returns.
- For a brief explanation, $OHM is staked on OlympusDAO for a high APR that is compounded approximately every 8 hours (called a rebase). Staked $OHM becomes $sOHM in which then needs to be wrapped on Abracadabra or on the OlympusDAO app itself.
- Users can borrow up to 70% LTV against their wsOHM on Abracadabra. Abracadabra can automatically loop the borrows up to 10 times. This saves you the hassle of swapping, staking, and wrapping it yourself. As an added bonus, also saving on fees!
- Let’s say for example I have $1000, and I wanted to borrow to get more for each rebase that happens to try to get to a final goal of $2000. I borrow a modest $500 and restake into OlympusDAO with a total of $1500. Assuming the price of the token stays the same, at the current APY of ~8140%, it would only take about 1 month to double my initial capital for a total of $2152. Compare that to an unleveraged position where it will take about 2 months for my initial $1000 to get to $2000. Just remember that $OHM is volatile, therefore, risk management is needed to avoid getting liquidated (losing all your money)
Key Takeaways & Conclusion: Frogs Swim Together
- Abracadabra is a lending platform that uses interest-bearing tokens as collateral to mint $MIM (Magic Internet Money). Thus, enables people users to borrow loans that pay themselves. As a result, allowing more flexibility and financial freedom.
- Abracadabra and $MIM is cross-chain and continuously expanding to more chains and enabling more support for different assets.
- Through clever tokenomics and in order to keep deep liquidity in its markets, the protocol rewards its users and creates an incentive to hold and stake its native token $Spell.
- Abracadabra and $MIM is catching up quickly to MakerDAO and $DAI despite being a relatively recent project and having a fraction of the TVL.
- There is a multitude of strategies to use with Abracadabra to increase profits and ROI.
Again, Abracadabra is just one part of the Frog Nation. The other projects all have this same vision and goals in mind. The best part of it is that it all works together cohesively and not only with each other but with all types of different assets in crypto.
At the moment, the other Frog Nation projects include:
- Popsicle.Finance— a cross-chain market maker and yield optimizer.
- Wonderland.money — a cross-chain treasury-backed reserve currency.
There’s no one separate protocol that’s doing its own thing. They all work together under one ecosystem to create synergy between each other and provide value to the users that are participating in them.
