Dear wizards, over the past 10 hours we have seen a large number of false Twitter threads. This has created extreme volatility that has affected the MIM peg and the MIM-3pool liquidity on Curve Finance. We’d like to take a moment to deep dive into the current situation and dispel these rumours.
tl;dr We have been open about the $12M of bad debt incurred from our UST cauldrons. These underwater positions will be paid down. We have more than enough assets in the treasury to cover this bad debt. We will be publishing a comprehensive repayment plan after we receive more info about the size and timing of our LUNA 2.0 airdrop. Users should repay their borrow positions to capture arb from the current depeg. MIM overall is still, and will continue to be, overcollateralized.
As most of you already know, Abracadabra previously offered one of the most popular farming opportunities for Terra UST. Our UST lending markets peaked at over $700 million dollars and allowed users to farm with 100%+ APYs on their deposits.
In the month prior to Terra’s collapse, we set out to decrease our overall exposure to UST collateral and to migrate to the new Wormhole-wrapped UST. As such, we decided to increase the management fee on the UST cauldrons, which would incentivise people to close their outstanding loans. You can find the announcement here.
Many people listened to our recommendation, closing their positions without incurring any major losses. The cauldron shrank from over $500M of UST collateral to less than $130M before the depeg.
The UST cauldron was designed to accommodate a non-volatile stablecoin asset, but given the abnormal market conditions, extremely high volatility, and bridge delays, there were a handful of instances where liquidators could not successfully liquidate UST loans. This resulted in $12M of bad debt on our UST cauldrons. Our team has been very transparent on Discord and we have disclosed both the existence of bad debt as well as the amount. You can verify this by checking our Discord community general chat and messages from team members and mods during the UST depeg.
As soon as we knew of the existence of bad debt, we began to structure a repayment plan. Despite having enough assets in the treasury to cover our losses, we have been waiting for the Terra team to update us on the amount of Luna 2.0 we would receive so that we could incorporate the tokens into our long term repayment plan.
Once these details are clarified, we will swiftly disclose the repayment plan for all $12M of bad debt. In the table below, you can see exactly how the bad debt in our system is spread across our cauldrons as well as the current LTV ratio of that cauldron.
Weeks before the UST depeg, our analytics dashboard stopped updating due to a system infrastructure issue. We decided that because everything was on chain and verifiable, we could use this as an opportunity to improve it rather than just fix it. This operation took longer than expected and the dashboard was taken down because it was showing outdated values.
Due to current circumstances, we’ve decided to postpone this update and release a patched version of the previous analytics dashboard. You can find the latest numbers here: Microsoft Power BI
Please note that this analytics has a pretty long refresh time, so the data you see there might be even 5 or 6 hours old.
If there are missing charts or analyses, please consider helping us by constructing new dashboards! Two dashboards abraStats and wenmerlin are awesome examples of successful community-driven projects. We will help you share them broadly, so that our community has alternative ways to view on-chain data and redundancies in case we experience another outage.
One of the central pieces to the FUD revolves around Abracadabra’s treasury composition. Our operational treasury, which does not include SPELL tokens, currently owns more than $13.2M in assets (at the time of writing). Roughly half of the treasury is in MIM stablecoin, and the other half is in CRV tokens which are fundamental assets for us to hold. If you are looking for the exact amounts, the treasury holds 6,619,923.5 MIM and 10,380,153.06 CRV tokens.
Despite what some individuals have said, this was not a “YOLO investment”, but a plan that we have structured for months. CRV tokens allow Abracadabra to increase the APY on the Curve MIM-3pool, which ultimately ensures that we maintain deep MIM liquidity and a healthy peg. You can read more about our plan here: AIP #7 - Expecto Patronum: A shield for all frogs - #99
In addition to the operational treasury, it should be noted that we have a separate SPELL treasury as well as the Luna 2.0 that we have yet to claim. We still do not know amounts or vesting schedules, but we will keep the community updated.
If you have any outstanding loans, we highly recommend that you repay while MIM is still below the peg as it is extremely profitable. In addition, repaying your loan helps rebalance the MIM-3pool and gets us closer to peg. As we write this post, the health of the Curve pool continues to improve and we fully expect the MIM peg to be restored shortly. In addition, we plan to share a more detailed set of dates around when and how repayment will occur.
Despite market conditions, Abracadabra has continued to develop new, innovative products. We will be releasing our first P2P NFT lending marketplace, as well as MIG markets (Magic Internet Gold). Both of these products will create new revenue streams for our SPELL holders and the Abracadabra treasury.
As always, please follow us on Twitter and join our Discord to stay up to date on these products and more developments.