Written By: ZiJo and Joe_King

Type of Stable Coin: Collateralized (interest-bearing tokens backed)

Who’s behind the project:

MIM is a USD soft-pegged stablecoin minted by the Abracadabra money. Abracadabra Money is a lending protocol that allows users to deposit interest-bearing assets as collateral to borrow a stablecoin called Magic Internet Money that can be used across multiple blockchains. The founder associated with Abracadabra money is Daniele Sestagalli, who is the founder of several popular DeFi protocols, including the popular Olympus DAO fork Wonderland Money (TIME) on Avalanche Network.

His reputation got tainted when he revealed that he was aware that the treasury manager of Wonderland was a former convict and co-founder of the collapsed Canadian crypto exchange QuadrigaCX. The disgraced DeFi founder is alleged to have made a decision to shut down the Wonderland project against community voting to save the project.

In the past, DAI founder Rune Christensen has slammed the Terra UST & MIM as ‘solid ponzis’ and we already know the bank run that happened with UST. Last year in 2021 both Terra and Abracadabra Money announced a partnership that aims to beat the centralized stablecoins by leveraging UST and MIM stablecoins.

Reserve / Peg Mechanism: What backs this coin? How is it stored?

Abracadabra Money is a multi-chain lending protocol utilizing interest-bearing assets to mint Magic Internet Money. Abracadabra’s goal is to unlock the otherwise stranded capital in DeFi protocols and empower DeFi users to yield farm with leverage. The protocol achieves this by allowing users to deposit interest-bearing crypto assets deposited in DeFi platforms like Yearn Finance and DEX like Sushiswap. Notable examples of such tokens include yvYFI, yvUSDC, yvUSDT, xSUSHI, and yvWETH. These tokens are then collateralized and injected into the system, after which they are minted into MIM tokens.

Let’s take a step further and see how MIM stablecoin compares with others like DAI. The standard yield farming mechanism requires users to stake or deposit crypto assets like SUSHI or USDT to yield farms like Sushi or Yearn. In exchange, they receive illiquid tokens such as xSUSHI and yUSDT that act as “receipts to the original exchange”. These tokens are called interest-bearing tokens or ibTKNs, which are used to retrieve the initial deposits plus any interest. ibTKNs are a type of LP Tokens. But in essence, what we are doing is we put in liquid tokens and get illiquid ibTKNs. In the case of DAI, we are depositing liquid crypto assets like USDC or Ethereum that are collateralized and yield a stable liquid token called DAI. We deposit liquid assets and retrieve liquid assets. Abracadabra combines these two approaches and allows users to deposit illiquid ibTKNs as collateral and mint a liquid stable asset called Magic Internet Money or MIM.

Let’s look at how liquidation works in Abracadabra money. Abracadabra uses Sushi’s Kashi Lending technology to provide isolated lending markets that enable users to adjust the risk tolerance according to the volatility of the collateral they decide to use. Unlike a DAI protocol where all user’s collateral is at the risk of a liquidation event, in Abracadabra each collateralized debt position is a separate entity and only at risk of its own individual liquidation. To clarify, if a user opens two CDPs with different ibTKNs they are able to borrow MIMs versus those ibTKNs individually, and set their risk tolerance accordingly. So if they believe a certain ibTKN has a higher chance of decreasing in value, they can choose to borrow less MIM against that ibTKN. Each Lending Market has a dedicated smart contract. These smart contracts are called cauldrons and allow users to open loans, borrow MIMs, leverage, and repay. Degenbox is another set of smart contracts that enable the acceptance of non-interest-bearing tokens and turn them into performance assets. It is actually a fork of Bentobox, which is a similar set of smart contracts used in the SushiSwap platform. Degenbox allows users to reduce transaction fees as well as allow the creation of multiple strategies for the assets held inside.

Another feature of Kashi Lending engine is that it allows users to leverage their interest-bearing tokens positions. To open a leveraged position, users need to deposit the interest-bearing token they want to leverage. Kashi allows withdrawing more MIMs than it should be possible, as long as the collateral required is supplied to the position eventually, within the same transaction.

Step 1 and 2 — The user selects the desired leverage (2x, 3x, 6x, etc, of MIM to borrow), obtains the yvUSDT, and deposits them as collateral.

Step 3 — Given the selected leverage, the protocol borrows the respective amount of MIMs.

Step 4 — These MIMs are swapped into USDT (current price peg and slippage play an important role here).

Step 5 — These USDT are deposited into a Yearn Vault to receive yvUSDT.

Step 6 — These yvUSDT tokens are deposited back into the Abracadababra to collateralize the user’s position.

Abracadabra has three tokens: Magic Internet Money (MIM), which is the US-dollar pegged multi-chain stablecoin, and SPELL, which is used to attract LP users. You can stake and lock the SPELL token to get sPELL which represents the users share of the SPELL fee pool. The sSPELL tokens are continuously compounding and when the user unstake, they will receive the original SPELl tokens plus any SPELL earned in fees. sSPELL token is used for fee sharing and governance. The SPELL token distribution is as below.

63% (132.3B SPELL): Global Farming Incentives

30% (63.0B SPELL): Team allocation (4-Year Vesting Schedule)

7% (14.7B SPELL): Initial DEX Offering

The price peg mechanism of MIM is simple arbitrage across different markets. In most cases, a lot of the Market to Market arbitrage is done by automated bots that constantly monitor pools for opportunities to capitalize on these price differences. This has the benefit of having price pegs corrected quite rapidly. MIM tokens are minted by a ****multi-sig wallet, deposited in the Kashi Markets smart contracts, and then injected into circulation only after the user deposits the collaterals. There is no seigniorage mechanism between SPELL & MIM token like in the case of Terra stablecoin.

The 5/9 multisign is composed of:

Poolpi (Yearn Finance)

Leo Cheng (Cream Finance)

Michael (Curve Finance)

Squirrel (Popsicle Finance and Abracadabra Money)

Danielesesta (Popsicle Finance, Abracadabra Money, and WonderlandDAO)

0xMerlin (Abracadabra Money)

Julien (Stakedao)

C2tp (Convex Finance)

Georgiyxo (Popsicle Finance, Abracadabra Money, and WonderlandDAO)

Reserve Assets / Mix:

I am not sure if Abracadabra money is audited by a third party. The Analytics page in the Abracadabra money website shows Work in Progress. But here is the data last updated in March 2022.

Source: Abracadabra money [last updated March 2022]

The total SPELL TVL is locked in various blockchain networks from this site. The abracadabra money site shows the available MIM markets here.

Where can it be used: The MIM token is a stable liquid crypto asset that can be used anywhere where it is accepted and its value is pegged to one USD. The SPELL token as mentioned before is used to attract Liquidity providers to maintain liquidity in Abracadabra lending protocol. But as we all know it is hard to attract liquidity providers forever with token rewards alone. Hence Abracadabra has partnered with Olympus DAO to take control of its liquidity as protocol-owned liquidity. With the bonding mechanism in Olympus DAO LPs sell their liquidity to Abracadabra in exchange for discounted SPELL tokens. That gives LPs an instant profit on their position paid in SPELL and mitigates the risks of impermanent loss. At that point, they can cash out or stake the SPELL for additional gains. The platform gradually reduces the SPELL farming incentives and dilutes the existing supply by adding permanent liquidity to the Abracadabra treasury.

Places to borrow or lend:

Popsicle Finance is a multichain yield optimization platform for liquidity providers. This is a platform developed by the same team behind abracadabra money and wonderland. MIM is a stable asset that works in multiple blockchain networks. It is easy to swap MIM for any other token in any other chain using a cross-chain swap protocol like Anyswap or MIM bridge and use it in any other networks for yield generation. I am not sure yet how MIM or SPELL is used in Popsicle Finance but is going to be an essential part of the abracadabra ecosystem. Popsicle Finance recently suffered a $25 million hack due to a smart contract bug in its platform.

Closing Comments:

Magic Internet Money is a unique stablecoin project in the DeFi space that enables to use of the stranded DeFi capital in various DeFi platforms held by the interest-bearing tokens. Personally, I have some founder trust issues with the MIM stablecoin project, similar to what I had with Do Kwon, who is the founder of Terra UST. Daniele Sestagalli, one of the founders of MIM shares some similar personality traits with Do Kwon which is a red flag for me. Other than that Abracadabra money had a rocky start and it will be interesting to see how incorporating yield-bearing assets as collateral for a decentralized stablecoin platform will play out in the long run.