*obligatory not financial advice*
What is Abracadabra Money?
Abracadabra is a magical DeFi protocol that allows you to use interest bearing tokens as collateral to mint a decentralized stablecoin called Magic Internet Money.
Some dApps allow you to stake tokens and receive an interest bearing token that represents your share of the pool. SushiSwap for example lets you stake SUSHI tokens in a pool that receives a part of the trading fees in form of more SUSHI tokens, and in exchange you get xSUSHI tokens that you can burn to get your share of the SUSHI. Yearn.Finance also allows you to put tokens in vaults that generate interest and gives you yv-tokens that represent your growing share of the vault.
Abracadabra is a stablecoin lending protocol that allows you to use xSUSHI, yv-tokens and similar assets as collateral. This makes it possible to gain liquidity without needing to sell an asset you are bullish on and still also earn a yield with it.
The process works much like Maker DAO and its DAI token do. Once you supply a supported token you can mint 70-80% of the value of your collateral as the Magic Internet Money (MIM) stablecoin. Once you have your MIM you can use it like any other stablecoin but you can only get your collateral back if you repay your loan with interest. This loan is very flexible and you can pay it back whenever you want, but should the value of your collateral drop and reach a point where it is at risk of soon no longer backing your minted MIM, then other users will be able to pay it back for you and will receive your collateral as a profit. In chase of such a liquidation you can keep your MIM, but you lost your collateral, which had more value.
MIM is pegged to the US dollar and it keeps its peg because the protocol always assumes its value to be $1 and thanks to arbitrage trading. Should its value rise above $1 on an exchange, then people could mint more MIM and sell it for an instant profit, which would bring its price down. Should its value fall below $1 on an exchange, then people could buy it at a discount to pay of their existing MIM debt, which would bring its price back up.
You can use xSUSHI, xBOO, yv-tokens and also a few "normal" tokens like WETH and WBTC as collateral. The protocol runs on Ethereum, Polygon, Binance Smart Chain, Fantom, Arbitrum and Avalanche and the MIM token can be bridged between all of them with AnySwap. The protocol is partnered with the stablecoin DEX Curve Finance and also with SushiSwap, whose LP tokens can be used to farm the SPELL governance token. Some applications like Devil Finance also distribute some MIM tokens for extra incentives. Abracadabra has gained a lot of fame and popularity in late 2021 thanks to all of that, but has been hit strongly by the sudden bear market in early 2022. Still with all its interoperability and utility it is likely here to stay.
The SPELL Token
SPELL is the governance token of the Abracadabra platform. The token lets its holders earn a share of the fees. You can stake SPELL to either receive mSPELL or sSPELL. 10% of all liquidation fees are going to SPELL stakers, the mSPELL holders receive them in form of MIM and the sSPELL holders get them in form of more SPELL tokens. A part of the collected fees is also set aside in a treasury that is controlled by the DAO. Both sSPELL and mSPELL give you governance rights for the protocol.
There was originally a total supply of 420 billion tokens, but half of them have been burned and now there is a max supply of 210 billion. 63% of that supply is going to liquidity providers of certain pools for SPELL or MIM, 7% were sold in IDOs on Uniswap and SushiSwap and 30% are going to the developers. The tokens of the developers are being vested for 4 years with the distribution getting lower for each year and the tokens that liquidity providers can farm are being distributed over 10 years and the distribution is halved each year.
As always, the value of the token strongly depends on how much liquidity is locked in its smart contracts and how many MIM tokens are existing. That is because its governance rights will have more demand if they affect more money and because the token is earning a share of the fees. Abracadabra has great utility since it allows its users to gain liquidity while still earning a yield and it is highly interoperable since you can bridge MIM across many different chains and use it there like a native token. The crypto market is currently rather bearish, which means that most people will not be confident enough in their digital assets to use them as collateral and risk a liquidation, but this will hopefully change as cryptocurrencies become more mainstream and accepted and in the long run there will likely be a strong demand for platforms like Abracadabra Money.
You can buy SPELL and MIM on Binance but decentralized exchanges like SushiSwap and SpookySwap offer it too. You can use a normal MetaMask Wallet to store your tokens and use the Abracadabra dApp.
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