Thanks for keeping an open mind, @ScaleWeb3. Happy to address some of the concerns youâve 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 donât think itâs especially fair or relevant to link Wonderland events to what weâre 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, itâs 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 donât have all the answers⊠Weâre 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 itâs 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, weâre committed to providing leverage wherever users demand it, and so weâre 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 weâd 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⊠Weâre 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.
