- Propose to release a MIM/mUSD fpool
- MIM needs more trading options and liquidity available to it, so that it can better maintain it’s peg, and it’s users can trade it out for other stables without taking a hit in dollar value lost
- mStable is looking for more integrations, more partnerships, and more recognition as a protocol that offers deep liquidity options with many stable-to-stable swap options available with low fees, and low slippage
- If this is to be released and proven successful, there is further opportunity in this potential partnership (technical considerations bearing) to allow users of mStable to deposit and borrow against their fpool tokens or imAsset tokens using abracadabra
- I believe there is an opportunity here to not only prove valuable and helpful to another protocol and its users, but additionally bring further exposure to our platform, while at the same time bringing about more options for our LPers
Abracadabra.money is a lending platform that uses interest-bearing tokens (ibTKNs) as collateral to borrow a USD-pegged stablecoin, Magic Internet Money (MIM), that can then be used similarly to any other standard stablecoin
Once MIM is acquired, it can be traded through Curve’s 3pool for another stable or for ETH on SushiSwap
In addition to those two avenues, because Abra uses isolated lending markets via Kashi tech, they also allow their users to leverage their existing interest-bearing token positions recursively, executing deposits and borrows up to 10x (docs link here).
MIM is backed within the protocol by each deposited ibToken individually - What’s unique about this design is that because ibToken’s are ever increasing in value, the amount of debt owed (MIM) is also simultaneously decreasing over time. This achieves a similar result to opening a position on Alchemix, though it’s a bit riskier given liquidations can still occur.
Abracadabra.money has a fairly standard liquidation system wherein if the user’s deposited ibToken’s value drops below their collateral value, then bots can pay the user’s debt position (MIM) and claim their ibTokens. Again, what’s unique here is that most of the ibTokens are stablecoin yearn deposits, which means they generally maintain their peg quite well - but if a user is significantly leveraged (consider 10x for example) and a de-pegging event occurs, then there’s a high probability they will get liquidated. You can read more about their liquidation system here.
Abra also has a governance and fee accrual token via Spell (12m mcap), which I won’t dive into here, but I think its worth mentioning as it could be contributed from Abra’s side if we end up pursuing dual token incentives for this fpool.
Now to touch a bit on why I think fpools will prove valuable here…
Upon borrowing MIM, the user’s currently available options are to (1) trade it out for another stable via Curve’s 3pool (2) deposit it into the 3pool, and the subsequently take those LP tokens and deposit them back into abra for a yield paid out in Spell or (3) trade it for ETH
Right now based on the MIM liquidity on curve, trading MIM for another stable results in at least a 1% loss in value, which is important for a couple reasons: (1) it disincentivizes borrowing on larger sums and (2) it’s prohibiting user’s from pursuing the 1-click leverage option - as each recursive borrow is eating away at their subsequent deposit amount resulting in a lower APY than if the peg was maintained at 1-to-1.
This is proving to be a pain point for Abra users and they’re looking for other ways to solve this problem.
Sifu — 07/25/2021 I can only trade it for stables at a 1% loss on curve, or eth. Some new options or a redemption mechanism would help. The transformer has allowed alUSD to maintain peg without issue, perhaps something similar here ?
BrabDdy — 07/25/2021 Hopefully we will get the curve gauge soon which should fix our MIM peg so people will be able to leverage with us during a bull. I personally wouldn’t use abra right now due to the peg being so far off
With an MIM/mUSD fpool, we can…
- Bring a secondary liquidity market that may help reduce slippage for these trades out of MIM to other stables
- Provide a competitive APY for MIM depositors, beyond the only available option in the space
- Provide a secondary route for their 1-click leverage tool, possibly allowing the atomic swaps to route through mStable
- Partner with yet another protocol that may consider dual incentives for LPers
- Bring in additional swap fees to Savers
As far as risks go, the only major one that comes to mind is MIM losing it’s peg or falling prey to smart contract failure. However, this is the beauty of fpools. In the unlikely event that one of those risks is to present itself, it will only affect the LPers of this specific pool, and not mUSD or the protocol on the whole.
Let the discussion begin!