Productive assets are a thing of beauty. One of the first things I do when taking people through a whistle-stop tour of crypto is showing them the potential APYs you can get in DeFi.
The response is always a moment of reflection whilst the cogs begin to turn and then they say something like “what is the risk?” or “what is the catch?” To which, I usually say something really smug like “the risk is you not being exposed”.
I’ll show them yearn, curve or if they are a bit of a boomer, AAVE… I’m not knocking it in saying that, it is just a visually easy way to display how borrowing and lending work in DeFi.
So with depositing crypto into a vault, naturally, you lose the ability to use the crypto if you wish to do so as it is now illiquid. You can usually withdraw your deposit in an instant depending on the protocol but some do have a short lock-up period.
More recently, there have been liquid staking opportunities arising across certain platforms meaning that, once you deposit your crypto into a vault/pool (or whatever you want to call it), you will receive another representative token for doing so.
This token represents the share of the pool that you have deposited into and it allows you to unstake when you wish to do so. It is kind of like a receipt. It shows your deposited amount along with the token prices at the time and just an overall snapshot of the deposit.
Interest bearing liquid-staking tokens (ibTokens) are so named because they offer the ability for users to deposit and earn interest on their crypto whilst also then being able to utilise the ibToken itself, to earn more yield…
Anyway, for the seasoned DeFi user this is a given but we like to be inclusive here at blocmates and not everyone is as much of a degenerate as you, so we will start from the ground up.
In short, ibTokens allow you yield on top of yield. Sounds great, doesn’t it?
What platforms generate ibTokens?
Well, there are more and more emerging every day but the usual innovative culprits like Curve, Yearn and Sushi are a good place to start.
In the most basic example, Sushi Swap generates xSUSHI for single-sided SUSHI stakers.
This represents the users share of the SUSHI deposited into the staking pool. Rewards are auto-compounded so the balance of your xSUSHI goes up without you having to do anything. Once you withdraw (which you can do at any time), your xSUSHI tokens will have appreciated and hence you will withdraw more SUSHI when you think it is time to do so.
Think of ibTokens as an IOU or a receipt that can be used to generate further yield if used correctly.
So how can you generate further yield with your ibTokens?
Well, a soon-to-be, blue-chip DeFi project that goes by the name of Abracadabra Money is revolutionising what it means to have your money work for you.
If that wasn’t enough, based on current projections, they could be on course to become one of the leading decentralised stablecoin providers in the whole of crypto. #OccupyDeFi is a movement, don’t fade it.
Project Overview –
So what is this mythical project all about? Earning yield on top of yield on top of yield and in some cases… on top of more yield and even more yield?! (all will be revealed)…
Sounds like magic internet money to me… That is exactly it. MAGIC. INTERNET. MONEY.
Abracadabra Money (Abra from now on or I’ll end up making a typo), is a borrowing platform at heart. It allows users to deposit their ibTokens from various DeFi platforms and whilst they are sat in said platforms, earning yield/interest, users can take their IOY, ibToken and place it into Abra.
Following a user depositing their ibTokens into Abra, from here users can mint and borrow Magic Internet Money (MIM).
MIM is a truly decentralised stablecoin that is backed by the underlying ibTokens that are used to mint it.
I’ll go into MIM a lot more in detail below but just to recap. Deposit ibTokens and mint/borrow MIM (decentralised stablecoin).
Let’s take a look at the tokens in the Abracadabra realm.
SPELL and sSPELL –
SPELL is the incentive token on the platform which encourages users to deposit their LPs into Abra to earn a yield on MIM-ETH and SPELL-ETH pools in the form of SPELL.
Now before you run a mile and think, oh no, another incentive token, here we go,… SPELL can be staked for sSPELL which opens the door to huge utility. sSPELL is then used for protocol revenue captured from various different angles.
Interest and borrowing fees from users who mint/borrow MIM plus roughly 10% of the liquidation fees are all taken and used to market buy SPELL and then redistribute this proportionally to single-sided spell stakers.
This is great because as more MIM is borrowed/minted then, more protocol fees are captured and those staking SPELL for sSPELL generate increasingly more and more gains.
Market buying SPELL every week also does wonders for price appreciation of the SPELL token due to buyer-side pressure.
This is all done automatically with auto-compounding which is perfect for those who like to do absolutely nothing and earn passive incooooooome.
I mean I don’t mind earning roughly 25+% annually on staked SPELL whilst the price of the asset continues to hit new highs.
Yes, for now, single-sided staking is on Ethereum… I know that is a pain in the arse for a lot of folk with the fees and all but, just keep an eye on the developments as you know by now that this team likes to build fast.
Magic Internet Money (MIM), is a truly decentralised and multichain stablecoin that is pegged to the dollar. As I mentioned above users can deposit ibTokens into the cauldron and borrow MIM to do with as they please.
With everything going on at the minute with regards to regulation and in particular scrutinies around stablecoin issuers like USDT and USDC, the narrative for a crypto-backed stablecoin out of the grubby hands of suits is hotter than ever.
If you are of the impression that USDC and USDT are decentralised then you may need to have a look at how these issuers work.
USDC was created by a joint venture between Circle and Coinbase back in September 2018 and has quickly become one of the most utilised stables in this space.
USDT, well, where do we even start with this one… the constant Tether FUD is a part of the furniture in the crypto space now and is a favourite amongst boomer circles who think they have just discovered something that no one else has ever thought of.
We know, we get it, it’s probably backed by a significantly less amount of dollars and assets than it’s made out to be. We have known this for years, you aren’t crypto’s answer to Michael Burry…
In my opinion, we need to get away from both of the above. They are centrally owned and are minted at the discretion of both companies.
Wallets and funds (for better or worse) can be frozen if they get the nod from the authorities. Speaking of the authorities, the recent subpoena that Circle received is just one of many too-close-for-comfort brushes with the SEC that have popped up in recent times.
I’m not a fan of how either USDT or USDC are being handled and this makes me all the more bullish on MIM.
Not that you needed any other reason to love this team but recently the team decided to take on the fees for the MIM bridge, effectively generating the cheapest and fastest way to bridge any stablecoin in the full industry. Bullish…
— Daniele 🧊🧙♂️ (🎩, 🎩) (@danielesesta) October 9, 2021
How would someone use Abracadabra properly?
Borrowing is often overlooked and underutilised to new folk in the crypto game. Don’t get me wrong, bad debt is a bad thing and quite rightly gets a bad reputation.
Unfortunately, it is usually the most financially vulnerable in society who are the targets of such bad debt products. Before I go off on a tangent, I’ll just cut it off early, but I find it pretty disgusting that pay-day “lenders” can freely advertise in certain parts of the world whereas crypto products are often highly regulated. Frogs > suits…
If you are borrowing money to go out and spend it on a new car that you can’t afford because it adds to everyone’s perception of you then I’m sorry but you are ngmi. This is an example of bad debt.
You take a traditional loan and borrow cash with a high-interest rate and use it to buy a depreciating asset which is the car. Both of your decisions are moving against one another. The interest you have to pay is going up, whilst the underlying purchase is going down. It makes no sense.
So good debt… good debt is utilising the funds you have borrowed and putting them in a place where it will deliver you greater returns or at very least outpace the interest payment.
You could do this by purchasing an appreciating asset or buying something that pays you higher interest than the interest rate you are borrowing.
Yes, there are risks involved with borrowing and lending, that is no shock to anyone but when done correctly it can be extremely powerful.
I mentioned in another article I recently released that people who understand debt and how to use it correctly are usually in the upper tiers of the financial game.
Those in the know will tend to borrow against their assets, be it their portfolio or other appreciating pieces of collateral. Why? Well, a few reasons:
The underlying portfolio (if picked correctly) can increase over time increasing the collateralization ratio and bringing down the interest payment. The amount borrowed becomes less risky as the collateral (portfolio) increases.
Why sell? There is no need to sell your assets and create a taxable event and also miss out on the potential upside.
Borrowing doesn’t incur capital gains tax… *lightbulb*
So, if your crypto fund is sat earning interest, in any other reality, that should be it. You have made your decision to earn interest on your assets through staking or borrowing, now go off and enjoy your life.
But, this is DeFi… and we don’t settle for the interest that is given to us, there is always room for more yield in this house.
So if I borrow MIM against my ibTokens, as it is a multi-chain stablecoin, I can effectively do whatever I want with it.
A basic example using SUSHI –
Say you have SUSHI and you deposit it into the single-sided staking pool on Sushi Swap to earn a cut of all protocol fees. This generates a yield on your SUSHI but also gives you xSUSHI.
Just financed a home purchase with @MIM_Spell…
get paid 10% / year on my dollars to own my house outright.
Very blessed… ty @danielesesta and team for an amazing product and ty defi for the opportunity.
— Ad_Infinitum (🎩,🎩) (@CryptoMessiah) October 4, 2021
You could then take xSUSHI and deposit it into Abracadabra and mint/borrow MIM at a maximum collateralisation ratio of 85%. Meaning for every $1000 of xSUSHI you deposit, you can borrow roughly $850 worth of MIM.
Now, what to do with MIM? Well, anything basically…
If I want to sell it for another stablecoin and cash that stablecoin out into IRL money and buy a house with it, then I can. That’s what the one and only Crypto Messiah did last week and it really, really got me thinking about what is possible.
This is what it is all about in my opinion and often at times, the number on the screen doesn’t mean a thing until you can realise them into something in the physical realm. Kudos to Messi, this was a boss move.
Or… you can use the abracadabra leverage feature to further increase your position doing what is known as folding, looping or whatever you degens like to call it these days…
An awful lot of TVL in lending and borrowing protocols comes from this next strategy. Abracadabra has made it so simple to use with great health factor indicators and position metrics too.
By heading to the Borrow tab on Abracadabra you can see what current tokens are available to use to mint/borrow MIM.
Leveraged SPELL Strategy – Looping/Folding –
Note – this is just an example – there aren’t currently any MIM to mint using sSPELL but keep an eye out for this… there are other deposits you can perform this strategy with… You can follow MIM Replenishes on Twitter to check when more MIM becomes available for specific ibTokens. Free Alpha.
So, with SPELL being the governance token for all things Abra, it allows you to deposit into the single-sided SPELL vault and earn interest (roughly 25% annually at the time of writing).
In return you receive sSPELL, you can see where this is going…
You can then take your sSPELL and use it to mint and borrow MIM with a maximum collateralisation ratio of 85%. All this means is that for every $1000 worth of SPELL, you can borrow $850 worth of MIM minus fees (more on the details later).
So, what could you do with MIM? Well, if you are comfortable and understand what you are doing you can easily take MIM and buy more SPELL, stake it and earn EVEN more interest.
This might be hurting your head if you have just learnt about this DeFi technique of folding/looping, but in my opinion, it is absolutely awesome. Again, if done correctly and responsibly…
The beauty of the Abracadabra interface is it allows you to place multiple loops without having to do the full deposit, borrow, buy, redeposit and borrow procedure which would cost you a small fortune. Just select your loop amount and collateral ratio you are comfortable with and away you go.
The L-word… and yes liquidation and the fear of it is pretty daunting. For the uninitiated, when you deposit collateral, in the case of Abra, ibTokens to borrow MIM, then if the value of those ibTokens drops below the value of the MIM you have borrowed then you will be open to liquidation.
So, you lose the ibTokens that you deposited… what about your MIM? Well, you get to keep that…
You are certainly at a net loss in dollar terms. But you aren’t fully out of the game unlike a full liquidation on a CEX.
An intermediate example… using TIME and MEMO.
Let’s say the value of your deposited TIME into Wonderland staking and you receive MEMO.
The value of your MEMO is $1000. You can borrow a maximum of $850 worth of MIM. If the value of your MEMO drops to or below the value of $850 then that liquidation is going to come knockin and your MEMO is no longer yours.
That being said, to reiterate the paragraph above, you will keep the MIM, so in effect, you are risking roughly 15% in dollar value terms. You can always choose to set the borrowing rate to as low as you feel comfortable with too. If you want to borrow 50% then you can, it is completely up to you.
On the other hand, if your MEMO value goes up (which with 0.56% interest it is bearing every 8 hours, it most likely will) then you can use this to pay down your debt or even borrow more MIM…
If you need to understand TIME, MEMO and Wonderland as a whole I covered this incredible project in THIS ARTICLE.
If you were depositing ibTokens that are generated from depositing stablecoins i.e. yvUSDT (USDT deposit into yearn) or even cvx3Pool (DAI, USDT and/or USDC into Curve and then CVX…) will be subject to a higher borrowing amount of up to 90%.
This goes without saying but stablecoin ibTokens shouldn’t (in theory) ever fall so low that your deposit is subject to liquidation. But, this is DeFi and funny things happen at times…
So TLDR: ibTokens that have price action you can borrow up to 85% in MIM, for ibTokens that are backed by stablecoins this is up to 90% in MIM.
Following the dollar value of your ibTokens dropping below the borrowed amount, you will be subject to liquidation. If this happens you get to keep the MIM you borrowed…
Potential for SPELL and MIM –
It is no secret that the wizard community are coming after Maker DAO and DAI. A community-built website showing the metrics of both protocols and the revenue generated has been thrown around online and has effectively been forced into existence.
SPELL is still around 2x from the MKR market cap despite generating 185.95% more revenue for those staking the protocol’s native assets (SPELL and MKR). It doesn’t take a genius to work out the projection of where this is going.
Abra has managed to pull this off since launching at the end of May during a terrible time for the crypto markets. It is going to be frightening to think where this project goes long-term from a narrative, community, development and revenue standpoint.
They’re not stopping at Maker and DAI either… Byebyedai.money is coming for USDC and USDT next, so don’t be surprised to see some relentless marketing from the team and community because as the stablecoin debate begins to heat up and as regulators begin to breathe down USDC and USDT issuers necks, the stage will be set for decentralised stablecoins, as it should be.
On top of that, the DAI collateral is increasingly becoming backed by USDC. What was once a very ETH-heavy collateralised stablecoin, DAI has been heading further and further towards centralisation.
You can run a programme on What backing my DAI? And at the time of writing, I was kinda surprised how far down the USDC route it had gone.
Make of that what you will but for me, I am not taking any chances with the way big Gary is going on at the SEC.
The MIM3POOL is a place on curve finance where users can deposit their stables (MIM, USDT, DAI and USDC) to provide them as liquidity to the market and in return trading fee rewards each time this pool is used to facilitate a stable swap.
This is obviously excellent for MIM liquidity and helps sure up the MIM peg over time. On top of that, as you might have guessed, users can deposit their stables into the MIM3POOL to earn CRV rewards and SPELL rewards as an additional bonus.
To add liquidity to the MIM3POOL and earn these additional rewards you can click HERE.
With the aim to be the most liquid decentralised stablecoin across all chains, MIM-stable pools will begin to pop up on a lot of emerging chains. Curve on Fantom currently has a MIM-DAI-USDC and MIM4POOL (DAI-USDC-fUSDT-MIM) which looks about ready to get underway.
As soon as the Curve Factory on Avalanche gets released we can expect it on there too as these pools are permissionless, allowing anyone to create a pool on Curve to increase the depth of liquidity.
Community of Wizards –
Go anywhere on CT and you will find a #OccupyDeFi, 🐸, 🧊, ( 🎩, 🎩) or a 🧙♂️ in peoples handles or bios. The frog is a signal to the frog nation, an army of degenerates who are fed up with the current status quo in finance and are supporters of those taking it into their own hands.
The ICE cube is a nod to those in Popsicle Finance, the DeFi 2.0 market maker, whilst ( 🎩, 🎩) symbolises those in Wonderland who are staking their TIME for some of the best returns in this whole space.
All of the above are organic marketing tools adopted by those in these three projects. Never bet against a movement.
The team have just mentioned they hired some additional hands that specialise in Solidity and RUST… wen Solana?
We have added 2 developers to the team. Both of them experts in Rust and Solidity with strong backgrounds. Excited to work on moving past EVM, into becoming truly cross-chain.
— Daniele 🧊🧙♂️ (🎩, 🎩) (@danielesesta) October 13, 2021
A strong community, an excellent product and a world-class team are all vitally important for a project to succeed and I am sorry if I repeat myself but I believe Abracadabra has all 3.
Summary and Closing Remarks –
I have been overly impressed with how quick this team moves and the products they release which all seem to be for the betterment of a decentralised world and for the benefit of their token holders.
I always like to check in with Token Terminal and place some kind of fair value on a project based on revenue and expected returns over the coming months-years.
MakerDAO is sitting around 11th for protocol revenue in the last 90 days with an estimated $68.7m in annualised revenue.
Now, this takes into account every lending product time users deposit in the MakerDAO and mint DAI and but if we can dig down into the revenue generated by ETH alone for both protocols, it begins to paint a brighter picture for Abracadabra and SPELL holders.
From stETH alone, around $1.9m of SPELL was redistributed to SPELL stakers last week. With stETH making up around 35.5% of the total SPELL redistribution awards on Abracadabra we can roughly assume that the protocol managed to deliver around $5.3m in SPELL rewards last week.
Annualised at current rates and prices this would equate to roughly $275m. Now we do have to take into account that a reduction in SPELL rewards is on the horizon with the new proposal being a 20% reduction. But if the price of SPELL continues to rise, which I believe it will, this will more than offset this.
In the past 365 days, there have only been 3 projects who have managed to achieve such numbers Ethereum ($1.7bn), Filecoin ($1.5bn) and Axie Infinity ($880m). Make of this what you will and assign your market cap based on your own assumptions, I am not Bitboy so I can’t give you a 10000x hopium prediction.
Now, take what I say with a pinch of salt because anything can happen and the SPELL rewards will probably be reduced again in May 2022 as initially intended. But, with the current decentralised stable coin narrative, bullish community and fast-paced team, don’t be surprised if you see some ridiculous metrics come out of this protocol.
And don’t just take it from me. As usual, I have been snooping through some DeBank wallets to see what the big dogs are doing. Most notably, this mad bastard who has over $400m in FTM (Ethereum layer 1) deposited and borrowing over $57m MIM.
There are over 100 wallets with over $1m deposited into Abracadabra on Ethereum alone… This doesn’t take into account the other chains that are beginning to gain a lot of Abra love.
So, you might think I am an idiot (and you would be right) but people who usually have $400m sitting around tend to be doing something right…
Finally, this completes the series of articles surrounding Popsicle, Abracadabra and Wonderland. If you can piece them all together this has the inner workings of one of the biggest global decentralised exchanges, currencies and money markets.
I really would advise you to keep an eye on what is brewing here and don’t just take it as short term price appreciation and speculation.
I hope you enjoyed this one, I thoroughly enjoyed writing it and I am kind of sad that the Dani ecosystem project articles are coming to an end although we may need to run it back turbo once Popsicle is released to see how it all ties together. Let me know who you think I should reach out to next to cover their project.
Again, no shills, I only write about projects I do or would invest in myself.
Any other projects reading this, hit me up on Twitter, Telegram @blocmates or even at [email protected] if you are a suit.
I think I will cover Spirit Swap next.
Not financial advice, I am literally an idiot.