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#55 I Put A Spell On You
Today we look at how Abracadabra money is absorbing DeFi.
Magical Internet Money
$SPELL could be developing into the ETF of crypto. SPELL is the token associated with abcracadabra.money, holders of the token can stake their SPELL to earn fees generated by the protocol. The protocol generates fees with its product, Magic Internet Money. What is Magic Internet Money?
The first wave of DeFi products that exploded in summer 2020 were things like synthetic assets and yield bearing instruments. One of the most popular of these protocols is Curve finance, with its tri-crypto yield vault. Users can deposit Wrapped Bitcoin, Ethereum, or Tether into this pool and when ready to withdraw can take out any equivalent dollar amount of the three cryptos that they put in. Yield is then generated by fees on the swapping and tokens generated that are given to depositors.
Now, in fall 2021, we have many yield products in DeFi that have proven themselves over the first year of their history. What abracadabra.money does is allows users to take some of these yield products (tri-crypto vault, xSUSHI, etc.) and lock them in smart contracts. Then the user can borrow Magic Internet Money (MIM) that is minted by the abracadabra protocol. The borrowing rate on this MIM is designed to be lower than the expected return on the underlying yield. This means that any user who deposits their yield bearing smart contracts on abracadabra can unlock a % of the underlying capital through MIM and use it for other things. For example, they may want to swap MIM for USDC and back to USD to buy real world goods and services knowing that the interest bearing smart contract will eventually pay back the loan.
The next important aspect of Magic Internet Money is that abracadabra is working on cross chain deployment. This allows MIM to function as the de-facto liquidity for arbitrage opportunities between decentralized exchanges. In the way Tether became the de-facto liquidity tool in 2017-present for centralized exchanges. This means that anyone coming into DeFi will be incentivized to not only borrow MIM but to then use MIM when trading pairs across exchanges on different layer 1 and 2 chains.
So, because abracadabra is spreading wide it means the yield bearing assets locked in the protocol are also a wide range of tokens including :
FTM TIME AVAX ETH AGLD ALCX CRV CVX BTC OHM YFI SUSHI
As, these tokens locked, in yield bearing instruments, rise in value and earn yield the returns to the protocol will also grow. This means that holding SPELL or staked SPELL is effectively a crypto ETF. But unlike an ETF where you pay a fee if you stake SPELL you are essentially earning dividends on all these crypto yield products. The game theory of Magic Internet Money seems to be working so far having absorbed over a billion in $ liquidity inside of crypto. If you don’t run out and buy SPELL after reading this you should at least be paying attention.