[Discussion] Abracadabra MIM/mUSD fPool

TLDR:

  • 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

Abstract:

  • 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…

  1. Bring a secondary liquidity market that may help reduce slippage for these trades out of MIM to other stables
  2. Provide a competitive APY for MIM depositors, beyond the only available option in the space
  3. Provide a secondary route for their 1-click leverage tool, possibly allowing the atomic swaps to route through mStable
  4. Partner with yet another protocol that may consider dual incentives for LPers
  5. 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!

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I am a long time mStable user and Governance participant. I use both mStable and Abracadabra regularly and would prefer to use mStable when swapping in and out of $MIM. We have an advantage here if we take it, many people are experiencing errors when trying to swap on Curve and the trade volume and increased users will help grow mStable. I should also add that the Abracadabra devs are closely tied to Alchemix (alUSD) and both of these protocols are symbiotic. Working with Abracadabra will open a lot of doors for mStable and help keep us relevant as DeFi evolves.

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I think this is a valid idea!

I haven’t heard much about MIM. I should look more into this project.

Currently, when adding assets we have to consider the following:

  • The additional Pool will get automatically MTA rewards and therefore lower the rewards for all other pools
  • Choosing which pools to create sends a strong message endorsing that project. We should be careful with this, as mStable priority is its security.

The question is whether this can be added at a later point when we do add permissionless pools and automated gauge rewards voting. This would make such a decision much easier.

Additionally, is there a partnership possibility for added incentives that would warrant the immediate creation of this pool?

Thanks for your response and notes @Dimsome !

  • The additional Pool will get automatically MTA rewards and therefore lower the rewards for all other pools

This is true, however, it’s true for the addition of all new pools until a permissionless, gauge-voting system is released (which as I understand is not currently on the roadmap). So I agree in that I think it’s important when considering if as a protocol whether or not we want to add any new fpools, but I think it’s less important when considering a specific fpool to be added.

  • Choosing which pools to create sends a strong message endorsing that project. We should be careful with this, as mStable priority is its security.

Couldn’t agree more. Until we add permissionless pools, we should certainly be evaluating projects and protocols on a case-by-case basis. That being said I think security, though of highest imperative, shouldn’t be the only factor that has weight in this decision. mStable is in a growth stage right now, and in my humble opinion, fostering partnerships and collaborations, creating more options for users and LPers, and placing bets on new directions the space is taking, will be what helps us reach a new level. I don’t believe we should sacrifice our principals in any way, shape or form, but I believe fpools have been designed to grant us this room for experimental growth. To try our hand at a collaboration that we may not have done prior, given the blast radius of potential risk is so much less.

Additionally, is there a partnership possibility for added incentives that would warrant the immediate creation of this pool?

The immediate incentives would need to be worked out in a discussion with the Abra team. I could see this going multiple ways, one of which could be dual token incentives for the fpool, while the other perhaps could be adding a cauldron (new asset as collateral) for mStable imAssets.

To share some additional thoughts…Abra itself has over 100m TVL, and the MIM pool on curve is coming up on 97m – without a gauge. Without any consideration of the fact that establishing a secondary liquidity market and use for MIM would only be beneficial for their protocol, it’s clear that they are onto something here as they’ve been running in production for less than three months. Perhaps this limited time on the market could be seen as more risk prone, but this space moves so quickly it would be difficult to apply that lense to one project and not another (Frax, LUSD, etc.).

I believe their approach of using ibTokens as collateral aligns not only with our products (imAssets), but our potential directions as well (wen mstketh sir), which I would argue is really a direction the ecosystem as a whole is going to be taking if they haven’t caught on already. I think this is a chance to put our stake in the ground and place a bet on mAssets/ibAssets being the future of money legos in the space.

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Great discussion @lonetree, and this project did appear on my radar a few weeks ago, but since I’m not deep in the tokens they offered, it quickly left from my view again, so it’s cool to see it here, and boy, has it grown!

I think the Yearn ecosystem in particular is a special snowflake that can differ quite rapidly from other perceived protocols, so we shouldn’t discredit this too quickly, simply because it might have a degenesque or gamified image to it. The TVL itself speaks a part to this.

Personally, I concur and think that feeder pools are there to remove risk from the core functionality of the protocol for mAsset holders that simply want highest security, and allow for people that want to explore protocols and assets outside of our tried-and-tested safe-as-can-be ecosystem to do so.

In doing so, they might not only find a farm, but hear and use mStable (or Abracadbra) for the first time, so the benefits are of a myriad nature.

The one thing I’d mention is that the concern for rewards are currently real, and each pool is going to reduce rewards for everyone, so it might not be as easy to get another feeder pool approved before the revamp of the entire system, whether that be a gauge system or other mechanism.

Also, I couldn’t find any Audit that was performed on Abracadabra, so while it technically is safe for us to deploy a Feeder Pool, the marketing and public opinion about something can quickly be skewed by being associated with a project that has not gone the route that most other projects have gone. We all know how quickly a bad or unforeseen event can take place and influence the opinion in this space, especially during the initial growth stage of a protocol.

Overall, I think we oughtn’t snuff at 100M TVL basically being on the table from upset users that want a better trading experience than Curve provides, and our AMM definitely being capable of providing such an experience for them, as well as opening up to further opportunities down the line, seeing how other protocols are closely associated with their community.

I hope maybe someone from the team or core community member could come here and comment on any plans for an audit, the current situation with Curve in greater detail, and generally add to this discussion here to get a better overview of the entire case.

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Completely agree! And this is my hope in kicking off this discussion. If anyone has a connection with the Abra folks, it would be great to get their opinion/thoughts in this discussion.

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I think this project is awesome and cross-chain :+1:
Adding IMUSD to Abracadabra.money can improve capital efficiency.

But we also need to pay attention to this project’s security

Just wanted to pick up this conversation.

I think to bootstrap liquidity for this pool it would help a lot if we can get some dual rewards? Can we establish communication with MIM-folks?

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Really excited about this feeder addition! I agree that rewards from MIM would be good. I personally don’t have a contact there though

For this @Dimsome - lets try and establish a channel with them to set it up.

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