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Governance token of the Abracadabra Money lending protocol, SPELL helps to incentivize what has become a fast-growing ecosystem of next-generation decentralized finance (DeFi) yield aggregators providing liquidity for asset-backed stablecoins.
DeFi Industry members are leading a movement built around projects seeking to build on the foundation laid in the past two years, solving for inefficiencies. Some analysts have called it “DeFi 2.0.”
Swapping stablecoins using a decentralized exchange (DEX) such as Curve Finance has resulted in the growth of locked-up tokens and related rewards, or interest-bearing tokens, or “ibTKNS.”
Holders of these tokens can maximize their liquidity using the Abracadabra platform. Users, who begin their DeFi journey as lenders, can (leveraging collateral) monetize their stake holdings, becoming borrowers, doing so by depositing ibTKNs, including yvWETH, yvYFI, yvUSDT, yvUSDC and xSUSHI).
The platform changes them into Magic Internet Money (MIM), a dollar-pegged stablecoin connected with Abracadabra; then, ibTKN-backed MIMs are then deposited into the borrower's wallet; borrowers (some might call them yield farmers maximizing yields) are assigned an interest rate based on the collateral.
Wait, you can borrow tokens and earn interest on your collateral? Welcome to “DeFi 2.0.”
Abracadabra has quickly grown into one of the most utilized decentralized protocols, as crypto-native (not centralized) stablecoins become a more integral aspect.
The growth of decentralized stable coins has for the most part been associated with MakerDAO (DAI) and the Terra network’s algorithmically run UST which recently began to collaborate with Abracadabra’s MIM.
Abracadabra uses a technique it calls “isolated lending market,” leveraging the use of ibTKNs.
MIM is a fully decentralized, cross-chain capable stablecoin. Numerous cross-chain integrations have expanded SPELL’s reach throughout the ecosystem, according to Cointelegraph.
The amount of MIM swapped depends on collateral, evaluated by its Loan to Value ratio (LTV), and the other is the initial maximum MIM allocation to that collateral.
In one example illustrating how the platform works, according to Abracadabra, consider the yield farmer who has deposited 100,000 USDT to Yearn Finance's USDT V2 yVault.
In this example, the farmer now owns $100,000 worth of yvUSDT tokens and, depending on risk-tolerance, can use the Abracadabra platform to convert a portion of those yvUSDT into MIM, paying interest but able to put the collateral – theoretically, in this example, increasing in value -- to some profitable use (provided the collateral does not decrease in value to the point of not being able to cover the borrowing).
Collateral (say, for example, locked CRV, via CRV’s related rewards token, vote-escrowed CRV, or “veCRV”) can be reclaimed by borrowers after they repay debt with interest.
The primary role for the SPELL token is running/governing the Abracadabra protocol i.e. SPELL gets staked in exchange for voting rights as well as a taste of fees generated by the protocol and some other rewards.
"Investors have embraced Abracadabra Money’s truly decentralized approach to DeFi, and the option to draw stablecoin loans off a growing list of assets appears to be backing SPELL’s rally to new highs," Cointelegraph said in November 2021.
The lineup of assets that can be pledged as collateral to mint MIM has expanded to now include Shiba Inu (SHIB), FTX Token (FTT), wrapped Olympus (OHM), and Fantom (FTM), according to.
As of early November 2021, the total value locked (TVL) on Abracadabra reached $4.15 billion, a record at the time, according to Defi Llama.
The Abracadabra team has said it intends to integrate SPELL and MIM into the Fantom ecosystem and offer new staking opportunities in Arbitrum and Avalanche.
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