Our UST Strategy! The first application of the magic potentialities of Degenbox!
With the release of our Degenbox, Abracadabra can now accept non-interest-bearing tokens and turn them into yield producing assets by deploying strategies through the Degenbox.
This groundbreaking technology creates yield on non-interest bearing collaterals while enhancing yield on interest-bearing collaterals. Overall, the use of Degenbox improves our cauldrons and allows us to create cross-chain yield strategies and more.
Before using this advanced strategy, make sure to fully understand how Abracadabra and our lending markets work here.
The Degenbox deploys and runs yield-enhancing strategies automatically, we’d like to explain to you what happens under the hood. Let’s dive into the different steps of the first Degenbox strategy - the new UST market!
Step 1: The cauldron
Users deposit UST tokens into the cauldron in order to either borrow MIM or leverage their position! Read more about how leverage works here.
Since this cauldron is built and connected to Degenbox, it will run an automatic yield-enhancing strategy with the UST deposited as collateral.
How does the strategy work?
Step 2: Bridging
The first step of the strategy is that the Degenbox bridges the UST back to the Terra Blockchain via the Shuttle bridge. 85% of the UST deposited by each user will be bridged, while 15%, on the other hand, are left on Ethereum Mainnet to guarantee smooth withdrawals from the cauldron (more on this later). Please not that this percentages have been changed to 90% on the 21st of December 2021.
Step 3: Utilizing Anchor Protocol on Terra
Once the UST arrive on Terra, they are provided to Anchor Protocol. Anchor is a lending platform that pays interest on the deposited tokens. aUST, an interest-bearing version of UST, is given out as a receipt for the deposits. You can learn more about Anchor Protocol here.
Step 4: Bridge Back to ETH Mainnet
The aUST tokens obtained from Anchor on Terra are then bridged back towards ETH Mainnet, and deposited into Degenbox. These tokens are effectively producing a yield, that will then be harvested and distributed to all the users who deposited UST as collateral.
Harvesting the Rewards
Degenbox has successfully enhanced a non-interest bearing token (UST) to produce yield for the collateral deposited in the cauldron.
Let’s now dive into how the rewards are harvested and distributed!
Approximately once per week, we will be sending part of the aUST on Ethereum back to Terra in order to be withdrawn from Anchor Protocol in exchange for the UST produced by the strategy. Once this happens, the UST tokens are sent back to Mainnet and distributed to users proportionally to the amount of collateral they have deposited in the cauldron.
And simple as that, we are now producing a yield on the collateral deposited! Users will therefore see an increase in the amount of collateral they have in the position every time a harvest is executed!
Withdrawing from the cauldron
This profitable strategy comes with some limitations. Given the cross-chain nature of this cauldron and the fact that only approximately 10% of funds are held in Degenbox on Mainnet, the amount withdrawable by users at a certain point in time will be limited. What does this mean?
Let’s run this through an imaginary situation! In our example, there is 5M UST withdrawable on Mainnet (as the rest is producing yield on Terra).
If the amount of collateral you are trying to withdraw is less than 5M, you will be able to withdraw it completely right away. On the other hand, if it is more, you will only be able to withdraw 5M and will need to wait for the strategy to withdraw some UST tokens from Anchor and Bridge them back to ETH before getting the rest.
No worries though, the Degenbox will rebalance the amount available to be withdrawn every time the withdrawable amount approaches 0.
If you can not withdraw, do not panic. Just wait a few hours and new UST will be made available to be withdrawn.
The user experience is similar to any other market available on Abracadabra, there are only a few differences:
- Firstly, the amount withdrawable is limited. Once this limits approaches zero, new UST are bridged back from terra and withdrawals are again available! You can check the amount Available to be withdrawn in the “My Open Position” box, under “Withdrawable Amount”.
- Secondly, your “Collateral Deposited” will increase in quantity rather than in value.
To find out more on how Abracadabra Lending Markets and Leveraged Positions work, please refer to here.
If you have any questions or concerns, join our Discord community here!