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

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.

Thank you for your constructive answer (despite us not differentiating Abracadabra from Wonderland incl. their questionable treasury management + liquidations).

I would do this with tokens that are “momentarily available”; I mean, until the time comes when they run out, would you use 20% ($160k Op)?

My question is exactly: how does Abracadabra generate $Mim protocol property?

I join @ScaleWeb3 question about liquidations;
I can’t find clear documentation on this:
It indicates that part of the fees (that go to the stakers) come from the liquidations, this makes me think that they are executed by the protocol; but then the document says:
“Although anyone can perform a liquidations, it has become standard for these functions to be performed by bots. Because of this, a user interface is not needed on the main site for this feature."
My Doubt is; If both situations coexist, it seems that part of the detailed fees for stakers can be “extracted” by third-party liquidators; this is correct? Or am I misunderstanding something?

2 Likes

We were thinking the 20% of 800K (160K $OP tokens). We were hoping to just follow the precedent set by Alchemix (e.g., 33%?) because it seemed like they had a successful grant proposal and they were able to preserve their voice in governance. Let me know if that doesn’t make sense!

There are three primary streams of fees that we collect and distribute to staked SPELL holders… We have borrow fees, interest fees, and liquidation fees. Borrow fees are paid when a position is opened. Interest is accrued over time for each position. Liquidation fees (~10% of the liquidation premium) are collected when liquidators close borrower positions.

Liquidations on our platform are fairly competitive, so we no longer liquidate the majority of underwater positions. That said, we still take liquidation fees (as mentioned above, ~10% of liquidation premium).

Does that make sense?

I understand the calculation; the question is whether they would use the available tokens, momentarily until they are used for the purpose of the proposal? you should include a detail of this, since it is of impact for optimism.

I understand where the fees for the $Spell stakers come from; my question is how does Abracadabra get $Mim token (protocol property)?

1 Like

Doing some follow up again.

Apart from what others has mentioned here about performance on Arbitrum, I would appreciate if you could help me with below point:-

  1. You are referencing Achemix, so I will mention the same things l wrote on Achemix thread, Keeping $OP token in wallet just for delegation is not good use of token.
  2. You are targeting 15% APY between OP/Spell, could you share the percentage distribution of this pair ? what will happen when price of one token goes down ? Will you still maintain 15% by burning the token as much faster rate ?

Please add this 20% in proposal.

any update on this ?

Please update the proposal to reflect the feedback you have received so far. This will save you from answering the same question again and again. :slight_smile:

1 Like

$MIM tokens are minted by a 5/9 Multisign, deposited in the our cauldron smart contracts, and then sent into circulation when a user opens a borrow position.

The current plan is do a 50/50 split between $OP and $SPELL, but we will revisit this split as token prices fluctuate.

Yep! We’ve made some progress here. After much discussion last week, the Abra team has decided to continue using the AnySwap version of the $MIM token. We will, however, be implementing a messaging adapter to unlock some of the benefits I mentioned above (e.g., letting users repay positions from any chain, ability to work with multiple bridges, etc.). An announcement is coming soon.

Can you expand on why you think protocols using a portion of their grants to have a voice in governance is a bad use of the token?

Seems like it would be a great way to deepen their engagement in the ecosystem while the tokens would otherwise just sit idle.

Sure, I think main objective of token distributed by gov funding is to be liquid, used in some form to onboard user and/or liquidity. I believe doing this will increase engagement from users. Give the token to users and let them decide who to delegate.

Seems like it would be a great way to deepen their engagement in the ecosystem

Depends on how you define engagement and how it will bring value of the ecosystem. How is their engagement different from mine ?

@OPUser @OPGovWatch if you’re going to continue to discuss the broader question of protocols self-delegating I suggest moving it out of abracadbra’s proposal discussion and doing so in this thread instead Let's settle once and for all the question of grantees self-delegating

Thank you @jackanorak but i will sit in audience corner for now. Personally I dont see us making a progress here, So i will wait until i see some other opinion around it.

Just following up on this. In the last two weeks, we’ve launched the $MIM token and the $SPELL token on Optimism and we’ve begun the bribing process on Velodrome and we’re currently in the top 10 pools for bribe amounts. We will continue ramping up this amount as we see changes in our LP pool and changes in LP APY (as per the plan outlined above). Happy farming, y’all!

2 Likes

I am an Optimism delegate [Delegate Commitments - #65 by mastermojo ] with sufficient voting power, and I believe this proposal is ready to move to a vote