[DRAFT] [GF: Phase 1 Proposal] Abracadabra Money - Cycle #8

Our dev team is going to move forward and launch contracts on Optimism. We think the liquidity won’t be there without the right incentives, but I think it’s worth investing time now so we can hit the ground running if/when this proposal passes (plus it shows the community we’re serious).

I’m going to take a second pass at perhaps putting a cap on the OP token distribution, so we can stretch out time. I don’t necessarily believe we should stretch it to 12 months (especially if APY is too low), but I agree that we shouldn’t exhaust rewards in 1 month either.

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A quick update. Our developers are almost ready to deploy our first set of contracts onto Optimism. We will be going live with two cauldrons in the next two weeks, one for Velodrome’s OP/USDC Volatile pool and another for Stargate USDC. Will revert back to this thread with contract addresses shortly.

We have also deployed a Gnosis Safe

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Following-up here. Our first two cauldrons on Optimism have been deployed! The team is currently working on hooking these up to the front-end.

Velodrome OP/USDC:
Cauldron: 0x68f498C230015254AFF0E1EB6F85Da558dFf2362
Strategy: 0xA3372CD2178c52fdCB1f6e4c4E93014B4dB3B20d
Oracle: 0xc845C5bAf57f61eB925D400AeBff0501C0e9d2Ba

Stargate USDC:
Cauldron: 0x0981a77C825CBF9fced939e05f12387Ef1955b90
Strategy: 0x6E93686D34a9EBf7c589998a576AB603719500ef
Oracle: 0x8CEe5B335f450933b4720B5b84e6125d4225FB62

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Very very excited to see Abra coming over Optimism.

They’ve demonstrated their resilience and shown they are a critical DeFi lego.

Also seems like they are fully deploying to Optimism and offering matching incentives which demonstrates their commitment to the ecosystem.

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Thanks so much for the vote of confidence, Alex! Post our discussion with the Velo team, we’re adding some details related to the LP depth models you’ve helped us with (see below).

UPDATE (8/19/2022)
We just got out of a productive meeting with the Velodrome team who graciously helped us model out liquidity depth and APY of a pool given the above incentives… Update posted below (and edited original post to reflect).

Let’s conservatively assume we’ll have ~$10K in weekly bribes (between $OP and $SPELL), we will receive a ~50% bonus APY. This means that we would see a $15K weekly bribe amount. Over 52 weeks, that’s roughly $780K in rewards. If we target a 15% APY, we would expect $5.2M of liquidity depth.

On top of this, however, the Velodrome team has suggested that there is currently a multiplier effect of roughly 3-4x on emission bribes. So we could actually be looking at a figure in the range of $15-20M.

Separately, we have been working on some magic partnerships… We’ve got some tricks up our sleeves that could help us boost APYs and liquidity even further (still in the works, so stay tuned). We think a 15% APY with a $15-20M TVL stable pool seems very feasible.

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Curve has begun making moves on Optimism and looking to expand its presence moving forward.

We have two new gauges voted in since the proposal was written (3pool and FRAXBP), TVL has doubled, weekly volume has 4x’d. Curve and Abra have a deeply intertwined history working together, and especially now that Abra has voted to lock CRV and vote in Curve governance, it would be in your interest to work with Curve on Optimism. No disrespect to other DEX’s, which you should certainly experiment with, but Curve has an established history and proven itself to be a sustainable and secure platform. The prudent strategy is to allocate according to risk, which should consider longevity, team, and brand.

I suggest Abra propose a Curve gauge on Optimism and make use of its locked CRV to help direct liquidity toward your own pool. Hopefully the above proposal passes, which means the gauged MIM pool will receive additional OP incentives.

I found this lukewarm take on working with Curve disappointing, because of our history as partners, and especially since Abra is the one that stands to benefit the most. But I understand the post was written a month ago and things change fast. Now you are aware Curve is expanding on Optimism and we want to continue the relationship with Abra that we have had so far on mainnet.

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We’ll obviously be continuing partnership with the Curve team (see our mainnet treasury for confirmation). That said, we’ve been working with the Velodrome team for a while now on fostering deep MIM liquidity and do have plans already in the works for getting from 0 to 1. Our priority is MIM liquidity and we’re open to working with any DEX that can help us achieve our goals!

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I mentioned on the discord and writing it here as well. you might need to use the new template as i have many question and most of them will covered in new template.

Updated to the template! Thanks for the suggestion, @OPUser

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Doing some follow up here.

when are you planning to go live on Optimism ?

We are currently targeting a September 26th launch of a new native $MIM token on Optimism. Once that happens, we’ll be ready to seed initial liquidity. Cauldron contracts are already deployed and we’re simply waiting to test them post-MIM launch.

The new $MIM token is going to make it safer & easier to bring our users from other chains over to Optimism, so it should be well worth the wait.

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Hey, I’ll leave you some questions

Could you give a detailed explanation of this?

Do you have any projection regarding the implementation of future vaults?

Would you say if this is an association with a bridge or do you mean something else?

[/quote]
your proposal indicates:

but this comment confuses me
Voy a dar un segundo paso para quizás poner un límite en la distribución de tokens OP, para que podamos estirar el tiempo. No creo necesariamente que debamos extenderlo a 12 meses (especialmente si el APY es demasiado bajo), pero estoy de acuerdo en que también deberíamos agotar las recompensas en 1 mes.
Could you explain exactly how you plan to do the distribution?

Hello @Jadmat.Eth-DefiLatam! Gracias por tus preguntas!

We have been in discussions with some liquidity / voting protocols (think Tokemak / Convex styled protocols) that might help us increase liquidity mining rewards. That said, none of these have been finalized and they will require further investment on our side, so we need to be thoughtful about how much liquidity we need and when.

Future vaults will come but will depend on 1) Yields and 2) Depth of our liquidity. With enough liquidity, we should be able to launch 3-5 high-yielding (non-stable) vaults in the next quarter on Optimism.

I can’t give too many details about the new $MIM token just yet, but it’s a native representation of $MIM and will allow us to bridge and repay from other chains in a single transaction. We think this upgrade also allows us to reduce some of the vulnerabilities related to bridged $MIM.

In the final comment, I realized I had a typo… It should read “I also agree that we should not exhaust rewards in one month either.” If you want rough guidelines on how we’ll distribute rewards across 12 months, the easiest would be to just take 1/12th of the tokens and allocate it for monthly rewards. In reality, what we’ll do is a monthly adjustment based on depth of liquidity + current APY on the pools. We still think targeting a 15% APY is roughly correct and so between $SPELL + $OP, that’s the APY that we will optimize around. If the APY is higher than expected, we’ll reduce $OP/$SPELL distribution. If the APY is lower than expected, we’ll increase the $OP/$SPELL distribution.

Hope this helps!

Excited to see native $mim on optimism

I am sorry; I see that there was a misunderstanding with your statement, I understand and I also think that the dynamic of your distribution is great; in an optimistic scenario, where the amount of $op+$spell to be distributed does not reach the target apy of 15% (at today’s prices, an average tvl to incentivize 8M during the period); what will be the way to go?

Focusing on strategic alliances generates significant added value for the ecosystem of optimism; Being the implementation of cauldrons key to their business, I have noticed that the implementation in Arbitrum happened a little over 1 year ago, and they still maintain only one cauldron (perhaps it is due to lack of alternatives?); It would be interesting to read that you can advance something more secure/concrete regarding this point as part of your proposal.

Hi @0xEdwardo, thanks for your proposal.

I’m wondering if you have got any review of your performance on Arbitrum you might be able to link to, and ideally some reassurance of why the project might be better able to retain value on Optimism. From the peak your TVL has dropped roughly 99% on the only other L2 it has deployed to. I’m sure you’ve done plenty of analysis as to why this occurred so it would be useful to share that here.

Great question! There’s a direct relationship between depth of liquidity on a DEX and the amount of APY that is paid out on a pool. This relationship is generally dictated by the market and so it’s not something we’ll ever have direct control over.

Generally speaking, the higher the APY, the higher the liquidity. If we somehow fall short of 15%, then the market will naturally correct itself by removing TVL from the pool. Ultimately, this means that we’ll just end up with less TVL and therefore a smaller number of cauldrons.

This is a similar question to what @MinimalGravitas is asking re: Arbitrum, so I’ll try to kill two birds with one stone here…

One of the lessons we learned with respect to the Arbitrum expansion was that it’s critical to have a plan for how to grow the liquidity on a chain before we open a bunch of cauldrons. Arbitrum was basically a test for us to see 1) Market appetite for leverage on the chain, and 2) Cost differences across chains. Because we never received a grant, the Arbitrum expansion was entirely funded by our treasury, so we had to be thoughtful about how much liquidity we could afford to bring to Arbitrum (versus expanding to other chains). This is one of the key drivers for why we are applying for this $OP grant this time around.

Our Arbitrum MIM-2pool pool currently sits at ~$11M TVL, which means that we can really only support 2-3 small cauldrons and 1-2 medium cauldrons. As the market cooled, we began seeing less appetite for leverage on volatile pairs and more appetite for stablecoin strategies. We made a pivot back in Q2 to focus on stable farming and have reached a point in the contract lifecycle where we feel confident we can roll these strategies out on multiple chains. We will be launching a second small cauldron (for stablecoins) very soon on Arbitrum, so stay tuned for that!

What do you mean when you say “a percentage of these tokens will be delegated.”

very interesting what you tell us about your experience with Arbitrum, let’s address some doubts

How is Abracadabra minting initial liquidity?
Can the protocol use its voting power on Curve for optimism?

Hint: your medium doesn’t seem to work

Thank you for your proposal!

We’d like to mention that we also have reservations towards the Abracadabra, Wonderland ecosystems as we see a tendency towards rather reckless growth, non-transparent dealings and appreciation of grey area projects & personalities - but we hope to change our opinion and see your positive impact on Op.

Why share this? Value-aligned teams, long-term-aligned projects are essential for Optimism!

You mention tremendous traction on other EVM chains & outsized impact in bringing users to Optimism.

TVL has decreased significantly due to a variety of issues (Sifu, intransparent liquidations/frontrunning, loss of confidence, macro, Terra & resulting losses…) and esp been short-lived on chains other than Eth.

We’d like to first & foremost understand the reasoning & your long-term plans for

  • building on Optimism
  • sustaining liquidity on Optimism (15% APY to sustain liquidity, incentives dry up, TVL goes away?)
  • moving existing users and liquidity from other chains to Optimism (any plans outside LM?)

Some insight into “magic partnerships” and “tricks” might help us understand as well :point_down:

Re: Value-add, Proposal Ask, Distribution, Co-incentives

  • MIM has been relatively stable and so far proven to withstand some turbulances without centralized USD backing
  • The value-add to Optimism will mainly be defined by the liquidity & users you move to the ecosystem. (We don’t see much added value for other projects & borrowers/stable users on Op)
  • The Ask is on the high-end but okayish for a project like Abracadabra.
  • The mentioned co-incentives are pretty solid (See Question below)

You mention 7.5M Spell ($10K) in co-incentives a week (-> $520K total). At current Spell price (0.001$) this is $7.5K (-> $390K total). Would you be up to do $10K USD in weekly co-incentives?

We were inspired by the Alchemix proposal and would love to have a structure similar to theirs whereby we preserve some portion (~20%) to give ourselves a say in some of the governance voting. If you think that’s too much, let us know and we can adjust it.

We’ll seed a Velodrome pool with a small amount of MIM/USDC protocol owned liquidity.

In the past, for non-ETH Curve chains, we’ve distributed bribes via a Sorbetierre on the abracadabra.money site. We will use our voting power on Curve to maximize protocol earnings and will redirect bribes appropriately across the different chains (depending on peg, liquidity need, etc.)

Ah, yes! We were recently forced to migrate ourselves to a more decentralized solution. You can find our blog at on Mirror (link)

Thanks for keeping an open mind, @ScaleWeb3. Happy to address some of the concerns you’ve mentioned:

Your concerns

Sifu - I believe you are confusing Wonderland for Abracadabra. Sifu has never played a role in the Abracadabra product. Wonderland is run as a completely separate protocol and we don’t think it’s especially fair or relevant to link Wonderland events to what we’re trying to do at Abracadabra.

Transparency around liquidations - All liquidations happen on chain just like every other DeFi protocol. Not clear what you mean about lack of transparency, but even if we wanted to hide something, it’s not clear how we could / would.

Terra - Like most DeFi protocols / chains, we do our best to serve our loyal users and customers. When we open a new leverage market, Abracadabra ultimately accepts collateral risk. In the case of Anchor, we had enormous market demand and we were simply doing our best to meet it. There was $16B worth of deposits at the time and we believed that the protocol was relatively stable (as did many major players, including Celsius, 3AC, Jump, etc.). Despite having a very large cauldron, because we had designed the cauldron with the right liquidation parameters, we managed to escape with only ~$11M of bad debt (impressive given we peaked at ~$800M of TVL at one point). We have since been more thoughtful about having a set of risk parameters that we use to control size of cauldrons, so we hope to avoid similar situations in the future. Like most of DeFi, we don’t have all the answers… We’re just trying to figure it out together.

Short-lived on other chains - Our leverage markets are driven entirely by user appetite. DeFi TVLs have shrunk across the board and yields have come down, so it’s only natural that users are not taking risk-on leverage.

Long-term plans

We are fundamentally a multi-chain protocol, so any innovation that we pursue for EVM-chains will also be deployed on Optimism. As mentioned above, we’re committed to providing leverage wherever users demand it, and so we’re hoping that Optimism will end up being a great place to launch more cauldrons! This is, of course, subject to many other factors (e.g., depth of liquidity, etc.) and so we’d like to use this Optimism grant to derisk some of those factors.

Sustainable liquidity boils down to our protocol being profitable so that we can continue offering bribes that are competitive with the market. There are a number of ways we can do that, including but not limited to 1) Increasing the fees we collect, 2) Protocol-owned veTokens, 3) Protocol-owned farming. Most DeFi protocols have not figured out the sustainability piece yet, so I think our current state is fairly reasonable.

As for migration of liquidity and users from other chains, it really just depends on demand and bribes. We are expecting demand to go up as more innovative DeFi protocols are built and Optimism users begin searching for leverage. Bribes will come in the form of OP and SPELL incentives… We’re very sure this will work as it has worked on other chains previously.

Partnerships

We have been in discussions with some liquidity / voting protocols (think Tokemak / Convex styled protocols) that might help us increase liquidity mining rewards. That said, none of these have been finalized and they will require further investment on our side, so we need to be thoughtful about how much liquidity we need and when.

Value-add, Proposal Ask, Distribution, Co-incentives

When we offer leverage, we do it because of user demand, so it should be useful for OP users that are looking to participate in DeFi. I would also argue that leverage is extremely useful for other projects as it increases depth of liquidity. As an example, we have managed to bring Stargate more than $30M of liquidity on Ethereum.

Volatility is well-known phenomenon within our sector, so we would happily revisit the co-incentives closer to an agreement to reflect adequate compensation from both sides.