Summary
With the introduction of Abracadabra Money V2, the current V1 system is expected to be gradually deprecated over time.
As outlined in the V2 announcement, existing V1 positions may be encouraged to close through increasing borrowing interest rates across V1 cauldrons, helping transition liquidity and activity toward V2.
This RFC proposes initiating a community discussion around the pace, structure, and aggressiveness of these interest rate increases.
The goal is to balance three objectives:
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Encourage the gradual migration of positions from V1 → V2
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Strengthen MIM reserves and protocol revenue
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Ensure a predictable and transparent transition for existing borrowers
Background
Abracadabra V2 represents a major evolution of the protocol, introducing a private DeFi banking experience while maintaining its core mechanics.
Key features include:
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Borrowing up to 90% LTV
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Private spending with debit cards
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A ZK privacy pool
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A streamlined banking interface across web and mobile
V2 is expected to launch in two phases:
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Q2 2026 — Beta
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Q3 2026 — Full release
As part of this transition:
Existing positions are expected to be gradually closed by increasing interest rates across all cauldrons.
The community now needs to determine how this should be implemented in practice.
Motivation
1. Gradual Migration to V2
A structured increase in interest rates encourages users to close or migrate positions over time, reducing fragmentation between V1 and V2.
2. Strengthening MIM Stability
With V2 introducing real-world MIM spending, maintaining strong reserves and peg stability becomes more critical.
Higher borrowing rates on V1 can:
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Increase protocol revenue
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Strengthen MIM backing
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Support new demand from V2 usage
3. Protocol Cleanup Before V2
A more aggressive rate environment ensures that:
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Inactive or “dead” positions are forced to close or get liquidated
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Outstanding debt is reduced
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The system is clean and efficient before V2 launch
Proposed Direction (For Discussion)
The team proposes a weekly compounding increase in interest rates across V1 cauldrons, designed to progressively make positions unsustainable over time.
Core Idea
We propose a model where interest rates are adjusted on a weekly basis across V1 cauldrons.
Example High-Level Schedule
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Week 1: 10%
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Week 2: 20%
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Week 3: 40%
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Week 4: 80%
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Week 5: 160%
This approach results in:
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~1000%+ interest rates within ~2 months
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Strong incentives for users to repay or migrate early
Technical Implementation Approach
Given differences across cauldrons and contract versions, the exact implementation may vary.
Rather than a single-step weekly jump, increases can be smoothed within each week, for example:
- 10% → 13% → 16.5% → 20% within a single week
This allows:
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More granular control
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Reduced shock to users
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Compatibility with different market implementations
End State
The objective is to reach high borrowing rates within a 30–60 day period, effectively:
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Forcing repayment of active positions
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Triggering liquidation of inactive positions
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Reducing V1 system exposure ahead of V2
This process is intended to:
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Improve MIM peg stability
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Consolidate liquidity
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Prepare the protocol for a clean transition to V2
Next Steps
If there is general alignment from the community:
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Finalize the interest rate strategy and parameters
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Draft an Abracadabra Improvement Proposal (AIP)
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Submit for governance vote by Spell Token ($SPELL) holders
Discussion
Community members are encouraged to provide feedback on:
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The proposed interest rate schedule
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The aggressiveness of the transition
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Risks (liquidations, market impact, UX)
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Alternative migration strategies
The objective is to ensure a controlled, transparent, and effective transition to Abracadabra V2, while strengthening the long-term health of the MIM ecosystem.