Tldr: Launch Abracadabra on Nibiru and add an inaugural sUSDa cauldron.
Cauldron Parameters:
Interest Rate: 5%
Borrow Fee: 0.5%
Maximum Collateralization Ratio (MCR): 85%
Liquidation Fee: 7.5%
Return Profiles
17.5% APY at 2.5x leverage
30.0% APY at 5.0x leverage
Initial top-up of 2M MIM for all cauldrons, and potential to scale up to 10M MIM per cauldron. In addition to foundation provided 2 - 3M of liquidity in the sUSDa <> MIM pool with incentives to ensure attractive APYs for the pool (>10%).
Introduction
Nibiru launched its mainnet with a CosmWasm execution layer on March 12, 2024, and released it’s Nibiru EVM on June 25th to the public. This EVM campaign will be a substantial campaign with a dedicated Abracadabra liquidity program to boost yields on MIM pools. At the forefront of the Nibiru ecosystem lies DeFi structured products and real-world asset (RWA) applications with layered yield strategies.
Avalon Finance is a the largest on-chain Bitcoin-backed lending protocol and the issuer of USDa, a Bitcoin-collateralized stablecoin. With over $2 billion in TVL and more than 20,000 Bitcoins serviced, Avalon has become a trusted platform for both institutions and individual users. By partnering with Avalon and with the addition of sUSDa and USDa to the ecosystem, Nibiru is expanding its structured products catalog to the Bitcoin ecosystem.
By incorporating sUSDa as a collateral option, Abracadabra aims to strengthen its ties with the Nibiru and Avalon community while expanding its diverse range of offerings. This strategic enhances Abracadabra’s position, provides Nibiru users with new opportunities, and further solidifies MIM as a key source of collateral in the ecosystem.
Proposed Abracadabra Cauldrons
An sUSDa Cauldron would offer some of the highest stable yields in DeFi earning up to ~30% yield, generating at least $100,000 of revenue for Abracadabra at target scale.
Nibiru will also have a perps protocol (SAI) that will be launched shortly which will allow for GLP equivalent positions that would be leveraged with Abra. With estimated yields of ~30% unleveraged, this would be another massive opportunity for the Abracadabra deployment.
Key Details
Initially, we propose launching the following cauldron on Nibiru:
sUSDa: (Bitcoin backed stablecoin)
- Parameters:
- Current Yield: 10.0%
- Maximum Collateralization Ratio (MCR): 85.0%
- Interest Rate: 5.0%
- Liquidation Fee: 7.5%
- Levered Yields
- 17.5% at 2.5x leverage
- 30.0% at 5.0x leverage
- Pool Size + Abracadabra Revenue
- Initial phase 2,000,000 MIM ($100,000 Revenue)
- $250,000 Nibiru Treasury Deployment into the Cauldron
Risk Assessment
sUSDa and it’s unstaked variant USDa is designed with a conservative approach to ensure robust risk management. The underlying asset’s stable nature and the following parameters aim to provide a safety buffer for liquidations:
- High MCR of 85%: Ensures that collateral is sufficiently higher than the borrowed amount, reducing the risk of under-collateralization.
- Large Liquidation Fee of 7.5%: Provides a substantial buffer to handle potential market volatility and ensure liquidations are profitable for liquidators.
Pricing sUSDa at a minimum 1 USDa is appropriate in this case as sUSDa can be redeemed for 1 USDa over a 7 days waiting period, making it an interesting endeavor for liquidators. USDa can then be further redeemed for BTC.
$SPELL Profitability
Based on the given parameters and an initial top-up of 2M MIM, this cauldron is projected to generate approximately 100,000 MIM annually for the protocol and $SPELL holders. This figure is scalable with the increase in MIM deposits, presenting a lucrative opportunity for the protocol.
Technology
The sUSDa cauldron will utilize the Magic cauldron structure that has been tried and tested over years. Users will be able to capture the additional value from an additional incentives and rewards through this structure. This deployment will utilize Nibiru’s own oracle for pricing sUSDa based on the market price across chains. MIMSwap and Oku pools (Uni V3 Contracts) will be the main drivers of liquidity on the Nibiru deployment.
Conclusion
The introduction of the sUSDa cauldron represents a number of benefits to the DAO and users alike:
- Highly Attractive Yields for Users: With a 10% baseline yield on sUSDa and up to 30% this will have no issues attracting capital
- Bitcoin Backed Security: Borrowing the security of overcollateralized Bitcoin, using conservative MCR ratios and
- Further Expansion to Bitcoin: By growing further roots into the Bitcoin ecosystem this will solidify Abracadabra’s reputation with Bitcoin holders and serve as a case study for future partnerships
- Profitability from Day 1: With $100,000 of revenue coming from this inaugural vault alone this would be one of the top 3 deployments on a TVL and fees basis.
Next Steps
TBD