DeFi Guides

Abracadabra! Although commonly used among magicians, it is also the literal name of the protocol that backs Magic Internet Money (MIM).

Abracadabra.Money, as it is profoundly called, is a platform that functions by using interest-bearing assets to mint MIM, its native asset. 

It may sound complex, but in reality, it is a relatively simple concept. The goal of Abracadabra is to create an exclusive path for users to get DeFi capital, so they can farm efficiently. In simpler terms, Abracadabra grants access to users and allows them to farm with leverage.

The narrative is achievable through a protocol specially designed to allow users to pay with interest-bearing coins such as USDT and Ethereum. To complete the process, these assets are minted into Abracadabra’s stable coin called Magic Internet Money, which we will discuss as we progress.

Brief history 

According to Abracadabra’s anonymous co-founder, code-named ‘Squirrel’, the Magic Internet money was born out of a need for a decentralised stablecoin that could do better than current alternatives. Specifically, the plan was to create a stablecoin that is entirely decentralised, effective in the multi-chain world, and convenient to use.

Squirrel believes that the majority of stablecoins have forgotten the actual values of DeFi, making reference to DAI which, in his opinion, has become unattractive. Notably, the judgement was based on the fact that most decentralised stablecoins are often collateralised by centralised stablecoin which he believe was ridiculous.

While the aforementioned is not a rare case, it has now become a trend in regular yield farming and conventional decentralised stable coins in today’s world. An insight into current DEXs would give a clearer picture of Abracadabra’s argument. It is for this reason that Abracadabra protocol was birthed with Magic Internet Money (MIM) being the native asset. 

What is Magic Internet Money?

Magic Internet Money, fondly known as MIM, is the stablecoin for Abracadabra protocol and is backed by interest-bearing tokens (ibTKNS). ‘ibTKNs’ are specifically selected because they accumulate interest and will continue to increase the price over time based on market predictions, thereby improving profits. These tokens increase in volume as users pay back interest on portions they borrowed from the lending pool.

Notable examples of such tokens include yvYFI, yvUSDC, yvUSDT, xSUSHI, and yvWETH. These tokens are then collateralised and injected into the system, after which they are minted into MIM tokens. Over time, they can be linked to other cryptocurrency blockchains and subsequently traded.

Standard yield farming requires users to deposit or stake assets like SUSHI or USDT to yield farms like Sushi or Yearn. In exchange, they receive illiquid ibTKNs such as the xSUSHi and yUSDT that act as “receipts” to the original exchange, which is used to retrieve the initial deposits plus any interest. For better comprehension, you put in liquid tokens and get illiquid ibTKNs.

Conversely, with a stablecoin like DAI, you deposit a liquid asset such as USDC or Ethereum, which is collateralised and yields a liquid stable token like DAI. Essentially, you put in liquid tokens and get liquid tokens.

Abracadabra puts a spin on this approach by combining the two methods. Users are allowed to deposit illiquid ibTKNs such as xSUSHI and yUSDT as collateral and can mint a liquid asset… Magic Internet Money (MIM). By doing this, Abracadabra has opened up the opportunity to farm stranded capital and turn illiquid assets liquid.

This innovation by Abracadabra has created a new use for interest-bearing tokens that had previously been left unused and wasted away. With Abracadabra, users can now leverage their assets to the next level with the barest risk, creating new possibilities and models.

How does it work?

As stated previously, Abracadabra is a lending pool for interest-bearing tokens. Therefore, it allows its users to efficiently control their collateral rates compared to conventional lending exchanges. Collateral is first stored on the Abracadabra platform, then the debt allocation and interest are apportioned to the borrower. Afterwards, MIM tokens are stored in the users’ wallets, and the users can use the tokens anywhere they want.

Governance

Abracadabra’s governance is carried out via a snapshot page where SPELL/ETH and sSPELL Sushiwap liquidity provider token holders can decide by voting on protocol improvement proposals presented to the community. With respect to this fact, Abracadabra needs to build and maintain a decentralized governance system.

Native coin

Abracadabra owns two tokens: Magic Internet Money, the US-dollar pegged multi-chain as previously stated, and SPELL – the governance token and protocol utility used for incentives and fee-sharing in its community.

The SPELL token totals about 210 billion coins. About 63% of that is used to incentivise a liquidity provider pair or other liquidity mining programs to maintain the deep liquidity of the project markets. The SPELL token, according to protocol, follows a mandatory ten-year halving model where its rewards are halved every year.

 

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.