There is still no consensus about the best method of creating a stable currency on the blockchain.

While USDT is the most popular stablecoin, many believe it is a giant house of cards capable of crashing the whole system.

On the other hand, the major decentralized stablecoin, DAI, has its own set of problems, such as the high percentage of USDC as the collateralized asset which is incompatible with hardcore decentralization advocates.

Many new products have entered the market trying to incorporate the best elements of the big players.

Enter Abracadabra, a polarizing project that has risen unstoppably from a TVL of less than $300 million at the beginning of September to $4.4 billion.

With Ethereum occupying 78% of its market share of TVL, Abracadabra is also gaining momentum on other blockchains, currently supporting Arbitrum, Avalanche and Fantom, and BSC.

Here’s how Abracadabra has grown so quickly.

Creating a multi-functional, one-stop experience

Abracadabra has slightly different functions for different chains. In the case of Ethereum, which has the highest TVL, it currently has farm, borrow, stake, and tools (including bridge, swap, and analytics) functions.

Borrow

Abracadabra’s main business is based on lending, and the outstanding difference from other over-collateralized lending protocols is the support of interest-bearing tokens (ibTKNS) as collateral.

For example, the ibTKNS certificates obtained from assets deposited in Yearn to yVaults can still be used as collateral to lend stablecoins in Abracadabra, which are MIM (Magic Internet Money). This allows the interest on the original asset to be preserved while also borrowing funds to obtain additional liquidity.

Most of the collateral currently backed by Abracadabra remains predominantly ibTKNS, along with tokens backing:

AGLD, the community governance token of Loot, an NFT project

ALCX, Alchemix’s token

FTT, the token used to underpin the entire FTX ecosystem

FTM, Fantom’s token

UST, the native stablecoin of Terra

SHIB

SPELL and sSPELL, Abracadabra’s own tokens

The total MIM borrowed of these pools above is between 170,000 to 6,000,000, which is not large compared to the maximum 300 million of ibTKNS pools. However, we can see that Abracadabra is not satisfied with just using ibTKNS, and has expanded the users of these new chains by adding other chain tokens as collateral.

The fees to be paid for borrowing are not only interest but also a one-time borrowing fee paid at the time of borrowing. The borrowing fee follows the same pattern as Liquity and will be added directly to the amount of debt due from the borrower. The interest and borrowing fees charged by different pools vary.

Potentially, there are also liquidation fees, which in general are 3% for ibTKNS backed by stablecoins and 12.5% for ibTKNS with price volatility risk. However, liquidation is currently performed by robots, so there is no UI to operate.

The collateral rate is also based on whether the collateral is a stablecoin partition, which is basically 90% for stablecoins and around 50% to 90% for other collateral with price fluctuations.

Abracadabra also allows the user to add leverage directly to the loan by adjusting the collateral ratio and the number of loops to increase leverage. This flashloan will be completed in one transaction, which can significantly reduce gas fees.

The leverage function automatically helps users convert borrowed MIM into USDT and deposit these USDT into the Yearn Vault to obtain yvUSDT, and these ibTKNS will be deposited back to Abracadabra for use as collateral. While the overall APY is increased, the user will not get any MIM.

To simplify, here is an example:

Users deposit $1,000 of assets in Yearn’s Curve stETH pool with an APY of 3.6%

Get ibTKNS yvcrvSTETH to continue depositing to the yvcrvSTETH pool in Abracadabra to borrow MIM

The Abracadabra pool’s borrowing interest is 0.5%, the maximum collateral ratio is 75%. In other words, the user can borrow up to 750 MIM

Equ...