Abracadabra Degenbox - Let’s Cast Spell On UST
Abracadabra is a magical protocol that casts a spell on your crypto to produce more crypto. Honestly, it performs a magic trick of sorts and makes your crypto work for you.
DeFi is ever-expanding with new protocols extending the use cases for the existing ones and in turn creating even newer use cases. Abracadabra is one such protocol that pushes the DeFi space further into making the interest-bearing tokens work for you. Interest bearing tokens (ibTKN) like yvWETH (WETH v2 Yearn Vault) or xSUSHI (Staked SUSHI) can be used as collateral on Abracadabra to mint MIM (Magic Internet Money). MIM is a USD pegged stable coin just like other stablecoins such as USDT, DAI, and USDC. If this amount of magic wasn’t enough, it now lets your non-interest-bearing tokens also earn yield by turning these into yield-producing assets.
Degenbox — Auto Yield Enhancing on UST
Abracadabra accepts non-interest-bearing tokens and turns them into yield-producing assets by deploying strategies through the Degenbox. Degenbox creates yield on non-interest bearing collaterals bringing value from other blockchains to Ethereum helping in improving the cauldrons by using cross-chain yield strategies. Cauldrons are smart contracts that allow funds to be deposited as collateral. Sounds cool!
Let’s understand how it works.
Step 1: The Cauldron
Users deposit UST tokens into the cauldron in order to either borrow MIM or leverage their position. This cauldron is built and connected to Degenbox and runs an automatic yield-enhancing strategy with the UST deposited as collateral.
Step 2: Bridging
Degenbox bridges the UST back to the Terra Blockchain via the Shuttle bridge. 85% of the UST deposited by each user will be bridged, while 15% are left on Ethereum Mainnet for withdrawals from the cauldron.
Step 3: Utilizing Anchor Protocol on Terra
85% of the UST bridged to Terra is deposited on Anchor Protocol for aUST (interest-bearing token).
Step 4: Bridge Back to ETH Mainnet
aUST tokens are then bridged back on ETH Mainnet and deposited into Degenbox. These tokens are effectively producing a yield, that will then be harvested and distributed to all the users who deposited UST as collateral.
Let’s Cast A Spell On UST
Degenbox deploys and runs yield-enhancing strategies automatically but an understanding of the process will help connect the dots. Let’s go down this rabbit hole on this scavenger hunt and explore this world of Abracadabra’s Degenbox.
- Bridge UST on Ethereum — Let’s start with some ERC-20 UST deposit on Ethereum in a Web 3.0 wallet like Metamask. You can either buy ERC-20 UST on an exchange and then transfer that to your wallet or bridge it from Terra to Ethereum using the Terra bridge.
2. Head on to https://abracadabra.money/ and click on borrow at the top.
3. Summon UST by searching for it.
4. Enter the amount of UST you want to deposit and borrow MIM against it.
5. Select the liquidation price as per your risk appetite. The maximum collateral ratio is 90 Percent.
6. And Voila! Your non-interest-bearing UST is turned into yield generating collateral using Degenbox’s automatic yield-enhancing strategy.
7. Swap your MIM to other stablecoins like USDC, DAI, or USDT by clicking on Swap option.
It opens the curve.fi website.
With this, we have bridged our UST from Terra to Ethereum, deposited UST to earn a yield on it, and simultaneously borrowed MIM against it. MIM can be then swapped to other stablecoins for other yield farming strategies.
Alternately, you can use that to buy SPELL (Abracadabra’s native token) and then stake those to obtain sSPELL and participate in the governance as well as fees generated by the protocol.
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