Abracadabra is a decentralized social network, similar to Reddit or Instagram. It has no central authority and hosts its own token on the Ethereum blockchain that powers significant incentives for content creators and curators who post original work. This article discusses how the platform came into existence, explains why it’s important in today’s society with so many centralized platforms controlling what people see and read, as well as provides an overview of Abracadabra’s current usage statistics.
The “Abracadabra became one of the fastest-growing decentralized protocols” is a blog post that discusses how Abracadabra became one of the fastest-growing decentralized protocols.
There is still no agreement on the best way to create a stable cryptocurrency on the blockchain.
While USDT is the most widely used stablecoin, many people fear it is a big house of cards that might bring the whole system down.
The largest decentralized stablecoin, DAI, on the other hand, has its own set of issues, including a significant proportion of USDC as the collateralized asset, which is irreconcilable with extreme decentralization proponents.
Many new goods have been introduced to the market in an attempt to blend the finest features of the major companies.
Enter Abracadabra, a divisive project that has rocketed from a TVL of less than $300 million in early September to $4.4 billion.
Abracadabra is gaining traction on other blockchains, presently supporting Arbitrum, Avalanche and Fantom, and BSC, with Ethereum accounting for 78 percent of its TVL market share.
This is how Abracadabra became so popular so rapidly.
TVL of Abracadabra by Chain Footprint Analytics
Developing a multi-functional, one-stop shopping experience
For each chain, Abracadabra has somewhat distinct functionalities. Farm, borrow, stake, and tools (including bridge, swap, and analytics) are presently available on Ethereum, which has the greatest TVL.
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Abracadabra’s principal business is lending, and the use of interest-bearing tokens (ibTKNS) as collateral sets it apart from other over-collateralized lending protocols.
The ibTKNS certificates produced from assets placed in Yearn to yVaults, for example, may still be used as collateral to lend MIM stablecoins in Abracadabra (Magic Internet Money). This preserves the interest on the original asset while also allowing more liquidity to be obtained via borrowing.
The majority of the collateral now secured by Abracadabra is ibTKNS, as well as tokens backing:
- AGLD is the Loot NFT project’s community governance token.
- Alchemix’s token is ALCX.
- FTT is the underlying token for the whole FTX ecosystem.
- Fantom’s token (FTM)
- Terra’s original stablecoin is UST.
- Abracadabra’s own tokens, SPELL and sSPELL
The total MIM borrowed from these pools ranges from 170,000 to 6,000,000, which is a little amount compared to the maximum 300 million available from ibTKNS pools. However, it’s clear that Abracadabra isn’t content with simply employing ibTKNS, and has broadened the scope of these new networks’ users by accepting additional chain tokens as collateral.
Borrowing costs include not just interest but also a one-time borrowing charge that must be paid at the time of borrowing. The borrowing charge is calculated in the same way as Liquity and is applied immediately to the amount owed by the borrower. Various pools carry different rates of interest and borrowing costs.
Liquidation costs, which are generally 3 percent for ibTKNS backed by stablecoins and 12.5 percent for ibTKNS with price volatility risk, are also possible. However, since liquidation is presently carried out by robots, there is no need for a user interface.
The collateral rate is also determined by whether the collateral is a stablecoin partition, which is about 90% for stablecoins and approximately 50% to 90% for other price-variable collateral.
Abracadabra also enables the user to directly add leverage to the loan by changing the collateral ratio and the number of loops. This flashloan will be completed in a single transaction, which will save you money on petrol.
The leverage feature automatically assists users in converting borrowed MIM into USDT, depositing these USDT into the Yearn Vault to get yvUSDT, and then depositing these ibTKNS back to Abracadabra for collateral purposes. The user will not get any MIM while the aggregate APY is raised.
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Here’s an example to help you understand:
- Users invest $1,000 in the Yearn’s Curve stETH pool, which pays a 3.6 percent annual percentage yield.
- To borrow MIM, use ibTKNS yvcrvSTETH to keep depositing to the yvcrvSTETH pool in Abracadabra.
- The borrowing interest rate for the Abracadabra pool is 0.5 percent, with a maximum collateral ratio of 75 percent. To put it another way, the user has the ability to borrow up to 750 MIM.
- The customer has only locked up $250 worth of assets, but may earn $1000 for the primary APY of 3.1 percent, leaving them with $750 to spend or invest in other ways.
- The expenses for the whole procedure are 0.5 percent interest on borrowed cash and a 0.5 percent one-time borrowing charge.
- If you want to raise the leverage at this time, you may borrow almost 3.8 times the initial MIM across 10 loops, bringing the APY to 13.5 percent, about four times higher than the original APY.
It’s worth noting that when leverage rises, the liquidation price rises as well, implying that the range of risk variations that consumers can accept narrows. When employing high leverage, consumers must carefully examine their risk tolerance level since once liquidated, they will no longer possess any assets.
By staking LP tokens, users may gain Abracadabra’s token SPELL. Sushiswap’s ETH-SPELL and MIM-ETH pairings are presently available on Ethereum, while MIM-3LP3CRV’s LP tokens are supported on Curve for liquidity mining.
Abracadabra’s APY on Curve surpassed 10.9 percent, with a 5.09 percent SPELL reward, and it ranked first in terms of volume. Abracadabra is putting in a lot of effort to retain user faith in the stablecoin MIM and the MIM price stable in the market.
Users may wager SPELL earned from Farm in order to get sSPELL and take part in Abracadabra’s fee-sharing system. Stakes are locked for 24 hours.
Abracadabra also offers a Bridge, which is directly integrated by AnySwap and enables users to swap MIMs on Ethereum, Arbitrum, Avalanche, Fantom, and BSC.
Swap may go straight to Curve to switch between MIM and DAI, USDC, and USDT.
Recently, an Analytics tool was added that allows you to get an overview of the Abracadabra borrowing and liquidation data situation. To comprehend the main statistics of the protocol, you may also look at the Abracadabra dashboard on the official website of Footprint Analytics.
MIM, SPELL, and sSPELL are the three major tokens.
Abracadabra is a USD-pegged MIM stablecoin, similar to Liquity’s approach, and SPELL is its protocol reward token. The token obtained by staking SPELL for fee-sharing and governance is known as sSPELL.
Arbitrage is a big part of MIM’s stable currency system. MIM’s cost of capital, like DAI’s, is controlled by the minting rate, which influences the supply and demand for MIM’s currency. Simultaneously, the MIM pool is expanded via high APY and incentives on Curve to give liquidity mining rewards for certain Sushiswap token pairings in Farm, ensuring the market’s stability and liquidity.
The present price of MIM has been quite consistent, essentially ranging between $0.97 and $1.01, according to Footprint Analytics data, and has not yet been substantially unanchored.
MIM Price Footprint Analysis
MIM’s market capitalization has overtaken that of its predecessor LUSD by a large margin. MIM is also the second most popular stablecoin after UST, indicating that when the liquidity of ibTKNS is depleted, demand for MIM remains robust.
Footprint Analytics: Market Cap Share of Stablecoins (November 2021)
SPELL is mostly obtained by staking LP tokens in Farm (to use Curve’s pool, you must first move to the Curve UI). SPELL, like MKR, is a governance token that may be used to change the protocol’s settings. With 45 percent going to the MIM-3LP3CRV pool and 18 percent going to the ETH-SPELL in the Sushiswap token pair, the SPELL allocation ratio reveals that the company has put a lot of attention towards liquidity incentives.
SPELL’s price is just $0.18 as of November 17, while Liquity’s token LQTY, which follows a similar paradigm, is $13.73 (LQTY does not include governance capabilities), therefore SPELL is still a long way behind its predecessor in terms of token price.
SPELL Price Footprint Analysis
SPELL is generally obtained through staking it in Stake. sSPELL is a governance token that also assists holders in capturing interest, borrowing fees, and liquidation fees from the protocol. One of the secrets to Abracadabra’s success, according to creator Squirrel, is the generous fee distribution system, which pays sSPELL holders a 75 percent part of the interest fee and 10 percent of the liquidation charge to the weekly sSPELL rewards.
The amount of sSPELLs reflects a portion of the fee pool, similar to the SUSHI/sSUSHI connection. A user will earn more income in the form of SPELL when he withdraws his SPELL. The user may view the sSPELL – SPELL ratio in the Stake interface, and when additional fees are applied, the value of one sSPELL token will continue to rise.
Abracadabra combines the best features of MakerDAO and Liquity and applies them to the over-collateralized stablecoin lending market in a new way. However, it is more aggressive, requiring a wider range of assets as collateral and connecting it to the risks of other protocols and chains.
It’s handy to be able to build leverage rapidly, but it’s also perilous.
Abacadabra’s creators, like Liquity’s, are strong supporters of the decentralized DeFI paradigm. Abracadabra is more active in growing external pools and use cases, whereas Liquity provides a clearer liquidation process.
While picking a winner between these two projects is hard at this time, it is apparent that DeFi will have powerful decentralized initiatives in the future.
The preceding information reflects the author’s own thoughts and opinions and is not intended to be taken as investment advice. Feedback is requested if there are evident flaws in understanding or data.
Footprint Analytics is the source of this report.
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