Introduction

Stablecoins are an interesting concept in cryptocurrency. A coin or token is considered “stable” when its value is backed by a secondary reserve asset, like gold or the US dollar. This allows the company that issues the coin to assuage fears of inflation, reducing volatility, and permitting investors to trade securely. One such company is Abracadabra Money, which uses a few different tokens on its budding platform. These include the stablecoin known as Magic Internet Money (MIM), which is backed by the US dollar, and SPELL, Abracadabra’s other native token.

Abracadabra.money is a lending platform that uses interest-bearing tokens (ibTKNs) as collateral to borrow a USD pegged stablecoin (Magic Internet Money - MIM), that can be used as any other traditional stablecoin.

Currently, a lot of assets, such as yVaults have locked in capital that can't be put to further use. Abracadabra offers an opportunity to use it.

What Is Abracadabra Money?

Abracadabra Money, referred to hereafter as Abracadabra, is a decentralized finance (DeFi) lending platform with plans to help digital investment move into the future. Abracadabra is built upon a number of commonly referenced cryptocurrency concepts, including but not limited to:

• Interest (or yield) bearing tokens: Interest bearing tokens (ibTKNS) are cryptos which are lent out, and slowly accumulate value as the borrower holds them. This means that when they are repaid, however that may be, the amount or equivalent will always be more than the original amount borrowed, which represents interest. Interest bearing tokens are usually lent via a form of lending pool system, as is the case with Abracadabra’s stablecoin, MIM.

• Lending pools: Lending pools in DeFi refer to communal collections of user contributed cryptocurrencies. This means that when you choose to take out a loan from a company that operates with a lending pool, you are essentially indirectly borrowing from other users, rather than from the platform itself. The platform, in this case Abracadabra, can then generate interest from these loans from users of any blockchain supported by their system.

• Cross-chain system: Generally, cryptocurrency platforms operate exclusively on a single blockchain, which acts as a ledger for transactions made on that platform. However, when they manage to incorporate the functionality of several blockchains, this is called a cross-chain system. Companies like Abracadabra choose to go the cross-chain route for a number of reasons; increased security, enhanced operability, or simply to increase and diversify their user base.

• US-dollar backed stablecoins: A stablecoin backed by the US dollar is exactly what it sounds like, a cryptocurrency that cannot be issued unless there are a certain amount of US dollars stored in the issuing companies deposits. This will usually be done at a 1:1 ratio, meaning there can only be one coin issued for every $1 in storage, however MIM (Abracadabra’s stablecoin) falls just below that. As a result, MIM is currently valued at $0.99.

How Does Magic Internet Money (MIM) Work?

Abracadabra allows its users to pledge other cryptocurrencies as collateral, giving them a supply of its own stablecoin in exchange, which is called Magic Internet Money (MIM). These are given out in the form of loans, as MIM must eventually be returned to the company, or the borrower will incur penalties. Here are the two possible courses of action for a loan taken out in MIM:

• Successful loan: If a user then wishes to reacquire collateral pledged in exchange for MIM, they must simply return their MIM, including the pre-agreed interest fee. Whatever capital they pledged, whether it be crypto, fiat, or some other form of currency will then be transferred back to them almost immediately. This is considered to be a “successful” loan.

• Failed loan: If a user fails to return their borrowed MIM before an allotted date, or their collateral dips below a certain value, they will automatically forfeit whatever form of asset they pledged. They do, however, get to retain their MIM – meaning that the platform still gets to increase its user base. This form of loan is deemed to be “failed.”

MIM can be exchanged for other stablecoins, or traded for cryptocurrencies on platforms where it is accepted. Abracadabra recognized that its users would want to be able to borrow against their funds tied up in other passive income crypto schemes – of which there are many. In addition, other users would be more than likely to want to contribute to the lending pool, provided they earn some form of passive income as compensation. This concept, called yield farming, usually comes in one of two forms:

• Illiquid token format: This is the standard approach to yield farming. With the illiquid format, contributors to the lending pool are given tokens that cannot be spent or used in any way. These then essentially act as receipts, and basically only exist to show that a user has contributed to the lending pool, and on which specific platform they contributed.

• Liquid token format: This is definitely the outlier when it comes to yield farming strategies. The liquid token format is similar to the example mentioned above, except that the tokens given out can be traded and spent. Instead of acting as a receipt for the contribution to a platform’s lending pool, these tokens are a form of currency in their own right. This means they must already have some form of agreed upon value in the crypto market.

Abracadabra turned these two more conventional approaches into a business model of their own design. By combining the two methods mentioned above, even though at first glance that may seem all but impossible, Abracadabra created a unique system. The company allows users to contribute already illiquid assets in return for liquid assets, the stablecoin MIM. This innovation has allowed Abracadabra to provide other platform users, who have already locked up their funds in yield farming schemes, to still use their contributed tokens. Although often with slightly limited functionality, as MIM is often accepted on fewer platforms than other, less rare forms of cryptocurrency.

Borrow

Abracadabra uses Kashi Lending Technology to provide isolated lending markets, that allow users to adjust their risk tolerance according to the collateral they decide to use. To read more about how isolated lending Markets and Kashi works, and why they are different from traditional lending protocols.

Liquidation Price

A liquidation price of $0.71 means that if your interest-bearing token drops to or below $0.71, your position is at risk of being liquidated. The liquidation price shown is always linked to the interest-bearing token which is used to borrow MIM.

Market Parameters (Example)

• Maximum collateral ratio - Maximum collateral ratio represents the maximum amount of debt a user can borrow with a selected collateral token.

• Liquidation fee - This is the discount a liquidator gets when buying collateral flagged for liquidation.

• Borrow fee -This fee is added to your debt every time you borrow MIM. As an example, if you borrow 1000 MIMs your debt will be increased to 1000.5 MIMs but you will actually receive 1000 MIM. These 0.5 MIMs will be distributed to sSPELL holders.

• Interest - This is the annualized percent that your debt will increase each year. The interest fee is later distributed to sSPELL holders.

• Price - Current price of the collateral selected.

Deprecated Markets

Parameters in the cauldrons can't be changed once deployed therefore, in order to change them, new markets will be added with updated parameters, and the previous one are deprecated.

When a Cauldron is deprecated it only means that no more MIM replenishes will happen. The cauldron itself is still fully operational, and if a users has an open position it can still be repaid at their own pace and time!

Note: Bear in mind that if you had a position open in a deprecated market, your collateral won't be showing up in the new market.

Leverage

One of the features of using Kashi as our lending engine is that it allows users to leverage their interest-bearing tokens positions. Here at Abracadabra, we have developed a one-click UI that allows you to do so automatically.

How the Leverage process works:

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. To better explain this, let's use the example of a user that wants to leverage his yvUSDT position:

• Step 1 and 2 - The user selects the desired leverage, 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.

It is important to notice that all of these steps happen in one single transaction, and therefore only one gas fee will be required. If one of these steps fails, the whole transaction fails.

Note: if the token is not an Interest Bearing Token, STEP 4 and STEP 5 are substituted by a simple market buy of the token the user is leveraging.

Transactions

It should be noted that 1st-time users will be met with several transactions in the following order.

1. Users will have to approve the spending of their collateral token to Bentobox.

2. Then, users will need to approve the spending of their collateral token to the contract specific to the position they are entering.

3. Next, they will have to approve the spending of the MIM they are borrowing to the contract specific to the position they are entering.

4. Finally, they will need to send the entire transaction to open up the position.

This is important to note, as each transaction will come with an individual gas cost.

Deleverage Positions

Please note that as Abracadabra cannot distinguish between leveraged and not leveraged positions this function can be used to repay any kind of debt, but it will cost more with gas than a usual repay transaction. Use this function accordingly.

Bear in mind that leveraged positions can be closed by simply repaying the amount of MIM owed to the protocol, it is not compulsory to use this function. This function allows users to close their position even if they do not have the required MIMs in their wallets

How the Deleverage process works:

Kashi allows withdrawing collaterals even without repaying MIMs, as long as the MIMs required are supplied to the position eventually, within the same transaction. The process works the exact opposite as the "Leverage Yielding Transaction".

To better explain this, let's use the example of a user that wants to close his yvUSDT leveraged position. This user does not have enough MIMs in his wallet to repay his debt, therefore he needs to use the "Deleverage" function.

• Step 1 - The user selects the desired amount of collaterals he wants to withdraw and the amount of MIMs he wants to repay.

• Step 2 - The protocol releases the user's collateral, in this case, yvUSDT.

• Step 3 - These yvUSDT tokens are then unstaked from the yearn vault and turn into USDT.

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

• Step 5 - These MIMs tokens are deposited back into the Abracadababra to repay for the user's released collaterals.

• Step 6 - The user receives whatever collaterals are left after these transactions, in this case, the value will be equal to the profit that the leveraged position has produced.

Stake

Abracadabra currently support two staking methods:

1. sSPELL - stake SPELL tokens and earn more SPELL

2. mSPELL - stake SPELL tokens and earn stablecoin income through $MIM

mSPELL

mSPELL staking allows users to stake their SPELL tokens and earn stablecoin MIM income coming from the protocol revenue! mSPELL staking has been implemented after the passing of AIP#8 which can be found here!

How does mSpell work?

1. Users are able to choose which staking method they like the most.

2. For mSPELL, the fees coming from the lending markets stay in MIM, and are shared across the different staking pools proportionally. In other words, MIMs will be distributed proportionally to the amount of SPELL staked in the pool (same process that is happening with the sSPELL pool).

3. mSPELL staker's will be able to claim their MIM anytime they want using the claim button.

mSPELL staking is available on Avalanche, Arbitrum, Ethereum and Fantom Opera!

LIQUIDATIONS

In abracadabra.money, every MIM is backed by a certain interest-bearing token (ibTKN). Unlike most protocols where all user's collateral is at risk of a liquidation event, here in Abracadabra, each Collateralized Debt Position (CDP) is isolated 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 versus that.

To read more about how isolated lending Markets and Kashi works, and why they are different from traditional lending protocols, please refer here.

That being said, there are still times when a user's ibTKN value will decrease and be flagged for liquidation. In this event, 3rd party players (usually bots) can choose to repay all of the MIM debt in exchange for the ibTKN collateral used for that specific CDP.

An Example (with made-up numbers)

Merlin the wizard has some yvWETH (an ibTKN). The current price per token of this collateral is $2000.00. Merlin is a mad wizard and he decides to borrow the maximum allowance of MIM tokens which he uses to buy ink for his magic spellbook. He is quoted a liquidation price of $1696.69

Zoltac the Dark, has a golem set to watch this CDP and is ready to liquidate at a moment's notice.

As fate would have it, the price of yvWETH drops to $1696.69, and Merlin’s collateral is no longer worth enough to cover his debt. So, Zoltac’s golem can go to work on this CDP and liquidate it.

Zoltac pays off the owed MIM and takes those magical yvWETH tokens into his possession. However, Merlin is not terribly disappointed, as he still has those MIM tokens, well the ones he didn’t spend on magic ink, and he no longer has to pay off his debt.

The Liquidation Fee

Each market has its own liquidation fee, but in general ibTKNS with underlying stable coins will have a liquidation fee of 3% and ibTKNS with price action will have a liquidation fee of 12.5%

Liquidation Fee Sharing - This fee is the incentive given to the parties performing liquidations. Furthermore, 10% of these collected fees are hard-coded to be set aside for the weekly sSPELL rewards on particular pools.

From a user perspective, this fee is already considered in the calculations when quoting a Liquidation price for the respective ibTKNs. When users' liquidation price is reached they are liquidated.

The Liquidation Price

The liquidation price is the price of your collateral at which you will be liquidated. If your collateral value decreases to a point where the liquidation price matches the price of the token that is used as collateral your position will be flagged for liquidation. The contract will not allow liquidators to perform liquidation above the liquidation price, meaning that the user's collateral is safe up until the stated total liquidation price.

Special Features

There are a few important points of note regarding liquidations that should be highlighted very clearly. These points set Abracadabra apart and can determine whether users will be liquidated.

The Special Features Are:

• Abracadabra uses ibTKN that go up in value on their own regardless of price action.

• MIM has interest so if a collateral, for some reason or another, does not increase in value, liquidations can happen. To reduce this risk, the team has selected ibTKNs that have a track record of increasing in value at a rate that far exceeds the interest rate on MIM debt.

• The Price action of underlying tokens in some of the ibTKNs can be quite volatile. To reduce this risk, the team has set tokens that have price action to have a Maximum Collateral Ratio (MCR) of 75%

• Abracadabra allows for the use of ibTKN with underlying stable coins as collateral with an MCR of 90%. Although it may be unlikely that these ibTKNs will decrease in USD value it’s not an impossibility as the underlying tokens may lose their price pegs from unforeseeable events.

• Although any person can perform a liquidation, it has become standard that these functions are performed by bots. Because of this, there is no need for a UI on the main site for this function.

Tokenomics

Token Address on the Avalanche Network: 0xCE1bFFBD5374Dac86a2893119683F4911a2F7814

Abracadabra has 3 main tokens:

1. SPELL: the protocol's token which is used for incentivization.

2. sSPELL: obtained by staking SPELL tokens and used for fee-sharing and governance!

3. MIM: a USD pegged stable coin

Token Burn:

The total Supply of SPELL has been reduced from 420B SPELL to 210B SPELL by performing a unique token burn event. 210B SPELL was minted to the SPELL contract itself. The contract has no way of accessing these tokens which ultimately turns the Token Smart Contract into a Burn Address. This burn event has been publicly announced on Twitter by our main dev 0xm3rlin.

SPELL Token Distribution:

• 63% (132.3B SPELL): Global Farming Incentives

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

• 7% (14.7B SPELL): Initial DEX Offering

SPELL tokens are distributed as follows:

• 63% of the total supply will be used to incentivize particular LP pairs or other liquidity mining programs. Read more about the weekly allocation of SPELL incentives in the following section! A 10 Year halving model will be followed, which will cut in half the rewards distributed every year.

• 7% of the total supply has been distributed via an IDO, half on Uniswap v3 and half on Sushiswap.

• 30% of the total supply is allocated to the team members