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Ever since DeFi emerged from the crypto industry many projects have tried to create a decentralized stablecoin that would always be pegged to one US Dollar but it has proven to be a very complicated task. Out of all the competitors Abracadabra seems to have come up with the simplest and most stable solution called MIM – Magic Internet Money.
To understand how MIM works let’s first look at the protocol behind it.
Abracadabara is a DeFi lending and farming protocol where users can borrow MIM stablecoins using other crypto assets as collateral, farm Spell, the governance token of Abracadabra, and earn passive income by staking Spell.
MIM borrowing is available on six different blockchains but farming and staking can only be performed on Ethereum mainnet.
Magic Internet Money is a decentralized stablecoin created by the Abracadabra protocol. It helps unlock the value of your interest bearing assets such as Ethereum that is deposited in Yearn vaults. With the expansion to different chains new collateral assets have been added so BNB users can now borrow MIM against Cake tokens, for example.
When users take out a loan their debt will increase over time based on the interest rate which is determined by the collateral that is being used. These smart contracts also known as Cauldrons then lock away the collateral and back the MIM token value with it.
With the most recent update interest rates will no longer be fixed, they will fluctuate based on supply and demand.
Abracadabra uses Spell as the native governance token meaning that holders can make decisions and propose changes based on their stake.Spell can be earned through farming on Ethereum mainnet by providing liquidity to specific pools on Sushiswap or Curve Finance.
Spell holders can also stake their tokens and earn passive rewards that are generated through protocol fees.
Once staked your Spell tokens will start earning rewards based on the current APR and the protocol will issue sSPELL tokens to your wallet that represent the underlying position. With this type of staking your sSPELL token number does not grow but the ratio between sSPELL and Spell does.
Users that find this mechanism confusing can use mSPELL staking where the ratio is always 1:1 while the APR stays the same.
Abracadabra is certainly a very useful product for DeFi users because it helps them unlock the value of their already staked tokens with minimal risk. If used correctly it can be a very powerful tool for investors and long-term holders.
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