We all now know DeFi (Decentralized Finance), a new financial system that is no longer based on centralized intermediaries but using smart contracts and blockchains, is made entirely decentralized, allowing users to speculate and earn interest by holding their tokens. For those who are starting to take their first steps and understand how DeFi works, they must prepare for a further step forward, the arrival of Defi 2.0.
Currently, we don’t yet have a precise definition of what DeFi 2.0
is. Like many other definitions, it was born as a joke on Twitter and spread among many memes and crypto enthusiasts. The Defi 2.0 is and will be the second generation of the current DeFi that will combine the current concepts of staking, farming and compounding with new concepts and improvements in progress.
One of the most critical players in Defi 2.0 is undoubtedly Daniele Sestagalli, who is revolutionizing the DeFi world through his platforms, including Abracadabra, Popsicle Finance and Wonderland.
In this article, we will mainly focus on the first Abracadabra platform ( https://abracadabra.money/ ) and its stablecoin MiM - Magic internet Money.
"Abracadabra Money is a lending platform that uses interest-bearing tokens (ibTKNs) as collateral to borrow USD pegged stablecoin (MIM - Magic Internet Money) which is a stablecoin that can be used as any other traditional stablecoin"
First of all, it is necessary to define what an interest-bearing token is; an interest-bearing token is a token that is in possession of users who have decided to stake their initial tokens, and from this staking, they obtain the interest-bearing tokens which generate a return for the user by increasing the number owned or its unit value thank to the interest rate.
For those who are not yet aware of what staking is, this is the activity of blocking cryptocurrencies to obtain rewards, and it is carried out as an alternative to mining and Proof of work (Pow), the mechanism on which it is based the whole Blockchain, through staking and Proof of stake (Pos) users can therefore validate the blocks of the Blockchain and thus obtain rewards by blocking their own cryptocurrencies.
What happened before the arrival of Abracadabra and DeFi 2.0 is that users were staking their tokens, obtaining interest-bearing tokens, which were held in their portfolios to mature.
The revolution brought about by Abracadabra provides that users, instead of letting their interest-bearing tokens mature in their portfolios, they can use them to generate further returns. On the Abracadabra platform, it is, in fact, possible to borrow MiMs, the stablecoin of the platform, using as collateral one's own interest-bearing tokens but not only that, thanks to the latest updates, many other types of tokens can also be used. In this way, the user will have MiMs available that he can use as he wishes to buy other tokens, farm them with other tokens or use them in other ways. This MiM loan has a very low cost that can be easily repaid using your own MiMs.
However, this strategy is not without risks (no free lunch) in fact, if the value of the interest-bearing tokens deposited falls below a certain level, we will no longer be able to repay our debt, and consequently, we will be liquidated. However, it is possible to choose the desired level of risk, and in fact, when you go to borrow the MiMs, you can choose the percentage of stablecoin to borrow with respect to the interest-bearing tokens deposited. It is therefore important to act cautiously and be aware of the risk you are running, and if you do, reduce the percentage of MiMs to be borrowed, all this is possible thanks to the enormous flexibility granted by Abracadabra.
Now let's explore the tokens of the platform: Spell and MiM
Spell - A revenue share token
Spell is the governance token of the abracadabra platform, but it is not a common governance token. We can consider it a revenue share token, in fact, the owners of Spell can vote and decide on the merits of the proposals made, but it is also possible to stake the Spells and receive sSpell, whose exchange rate towards Spell grows over time thanks to the revenues generated by the Abracadabra platform.
The sources of revenues of the platform are substantially three:
- Borrow fee and the interest rate paid by users who borrow MiM by depositing their tokens
- Liquidations of users who, due to the collapse of the price of their tokens placed as collateral, are not more able to repay the loan obtained
- The third source of revenues revealed by the founder, Daniele Sestagalli, in a recent interview, is an agreement with the Yearn Finance platform in which 45% of the fees earned by the Yearn Finance platform on tokens placed as collateral on Abracadabra ends up in the hands of Spell's holders, this is currently the platform's major source of revenues.
This is the current situation, but what awaits us for the future of Abracadabra?
Daniele and his team are continuing to work hard in the development of the platform, as he himself declared one of the next features that the team is developing is to give the Spell holders the possibility to decide how to receive their rewards. Currently, all the revenues generated by Abracadabra increase the exchange rate between sSpell and Spell or are destined for buybacks or Spell burns. What the team is working on is to give individual users the possibility to decide whether to receive their rewards in the form of Spell, increasing the value of sSpell and consequently the number of Spells held at the time of the exchange, or whether to receive the reward in MiM, the platform's stablecoin, it will also be possible to decide whether to receive even only a part of the rewards due in MiM and the other part in Spell.
The rewards received in MiM by Spell holders can be compared to corporate dividends. The interesting and improvement made respect to traditional finance is that it will be the user who decides whether to receive the dividend (rewards in MiM) or go to increase the value of the share (Spell price), which is not possible with traditional finance since it is the company's top management who decides whether to distribute dividends or proceed to invest the company profits in buybacks or otherwise.
What is clear, therefore, is that the watchwords of DeFi 2.0 are increasing flexibility, customization of the offer, and continuous improvement.
MiM - Magic Internet Money
We can say that the battle on stablecoins is only at the beginning, and more and more actors are taking an interest in them to understand how they work and understand how to influence the crypto world, among these we certainly find the governments of the most developed countries that, it is no secret that, are following with more and more attention the developments of this world that continues to innovate faster and faster.
One of the main reasons for Abracadabra's success is certainly the innovation brought to the world of stablecoins with MiM, Magic Internet Money.
MiM is a USD pegged stable coin that is backed by interest-bearing tokens. As we explained previously in fact, users can borrow MiM by depositing their interest-bearing tokens, and it is precisely these interest-bearing tokens that support MiM as a stablecoin. For this reason, we can consider MiM as a real and fully decentralized stablecoin, unlike the competitors who, if analyzed in-depth, do not seem so decentralized.
The leader in the decentralized stablecoin sector is currently DAI, the native stablecoin of the Maker protocol, defined as "the world's first crypto-collateralized and decentralized stablecoin, whose value is soft pegged to the US Dollar".
However, analyzing DAI, we can see how it is supported for 50% by USDC, a centralized stablecoin, and more than 50% of the support to DAI derives from centralized assets. This leads us to conclude that DAI is nothing more than a wrapped version of USDC, and that is not really a decentralized stablecoin. It can be considered a transitional stablecoin, created in 2017 and which paved the way for new decentralized stablecoins, but to date, it has become obsolete, and MiM with the Abracadabra protocol is definitely ahead in terms of technology. It is for these reasons that the world of DeFi is watching with great interest the innovations made by MiM, which is currently in sixth place with a Market Capitalization of approximately $3.600.000.000, but after the in-depth analysis carried out on the various protocols, we would like to say and make a personal forecast: MiM will flip DAI in terms of supply.
You can keep all the data under control at this link https://www.byebyedai.money/ . At the moment (December 2021), MiM has a supply of approximately $3,600,000,000, while DAI has a supply of approximately $8,800,000,000.
Finally, we asked a few questions to one of the Abracadabra team members, whose nickname is Romy, and we would like to bring you an excerpt below because we think they can help you understand better the world of DeFi, Abracadabra platform, and any future trends.
How did the idea of Abracadabra come about? And how did it then develop?
“The idea arose from the fact that some team members have many interest-bearing tokens within Yearn Finance and did not know how to use the capital currently deposited there. They, therefore, decided to create this protocol that would allow them to use their interest-bearing tokens to borrow a stablecoin, from which it is then born MiM. Since that, the idea had developed a lot, in particular after the launch and initial development when the team realized the enormous demand on the market and the possibility of allowing users to leverage. From that moment on decided to expand the protocol by accepting non-interest-bearing tokens, mainly listening to the requests made by the community.
Now, the team is strongly focused on improving the MiM stablecoin, trying to make it the stablecoin of reference for DeFi.”
Who are the team members, and what are their backgrounds and skills?
“The team consists of about 12 members, the main team members are:
- Daniele Sestagalli: Founder with a strong charisma, background as an architect, for years in the world of Blockchain, has financial and coding skills.
- Merlin: Lead Developer with deep coding skills.
- Georgiy0x: It can be identified with the same responsibilities of a COO: deals with the management of resources and, in particular, the management of the site developers
- Romy: Community manager, quality assurance, and economics student
- Squirrel: main activity deals with protocol relations, product development, and research
- Various coders, advisors, and designers."
What, in your opinion, will be the main trends to follow during the next few years?
“It is difficult to understand what will come, but I am a strong fan of the Metaverse. I think it will be a very important trend how Defi and Metaverse will interact and consequently also NFT. I also think that Liquidity Providing, that is, Popsicle Finance does, will be the next big thing because until more stringent regulations arrive, users will move more and more from centralized exchanges to decentralized ones that do not require KYC.
Furthermore, as a bitcoin maximalist that I am, I think a sector that will have really great developments will be the protocols that connect the world of cryptocurrencies with that of traditional finance.
Other interesting sectors will certainly be Gaming, which will give a strong use to cryptocurrencies and NFT, another one will be luxury, in which very large companies will move more and more towards NFT and cryptocurrencies, and the world of Olympus DAO Forks, such as Wonderland, as a way to create a treasury, raise funds and then use these funds to develop your own project.”
We arrive at the conclusion of this brief overview in the world of DeFi 2.0 and, in particular, in the world of Abracadabra. One thing that often strikes us studying and following the developments of the DeFi world is the speed with which this world is developing, and we realize that as we are writing this article when it is published, some things contained in it will have already become obsolete thanks to the enormous innovative potential shown.
We do not feel like giving any advice to our readers other than to study and deepen the project that, in our opinion, is revolutionizing the world of Defi and the new finance.
Written by Riccardo Donatelli