Just when you thought you were maximizing the return on your farm, Magic Internet Money (MIM) arrives. Abracadabra is a DeFi protocol allowing you to borrow stablecoins (MIM) against Interest Bearing Tokens (ibTKNS). For example, that USDC you dropped in Yearn’s USDC Vault earning you ~5%, you can borrow MIM against that position and continue earning interest while also putting MIM to work elsewhere!
Don’t get me wrong, this is straight up rehypothecation on steroids. But at least we’re being up front about it? The token is literally called “Magic Internet Money” for this reason. Proceed with caution.
For today’s example, we’re going to lever up our LP position in Curve’s 3Pool using Abracadabra. The steps are:
- Deposit USDC into Curve’s 3POOL in exchange for 3Crv LP tokens
- Deposit the 3Crv tokens into Abracadabra’s cvx3Pool in exchange for cvx3Pool tokens
- Borrow MIM against cvx3Pool
- Swap MIM for USDC
The first step of opening up an LP position in Curve’s 3Pool is something we’ve done many times before. Just like how we farm Curve rewards with Convex, we’re going to deposit into Curve’s 3Pool and not stake in the gauge. Only click the deposit button.
Depositing in Curve’s 3Pool will result in 3Crv tokens in your wallet. In this example, we staked 1,000 USDC which resulted in 981 3Crv because the value of 3Crv is slightly above $1 at $1.019.
Typically you would stake 3Crv tokens in the Curve Gauge to harvest CRV rewards directly, or into Convex to harvest rewards using extra boost. But instead, we’re going to deposit them into a magical Convex 3pool created by Abracadabra which allows you to borrow against those tokens while still harvesting rewards through Convex. Simply click the deposit button to swap your 3Crv for cvx3Pool.
❗ The first time I did this, I assumed you had to deposit your 3Crv into Convex. That was a mistake. You can only obtain cvx3pool tokens by depositing directly through Abracadabra.
Once you have cvx3pool in your wallet, you can head over to Convex’s Claim page to see that a new section has appeared which allows you to claim your CRV and CVX rewards just as if you had deposited your 3Crv tokens directly through Convex.
Now while your 3Crv rewards stack, you can also borrow MIM against them! With any borrowing situation, the primary concern is your Liquidation Price. This is the price of 3Crv which Abracadabra will begin liquidating your position in order to keep your loan-to-value ratio in check.
But think about it… you’re borrowing against stablecoins which should be stable around $1! 3Crv is stablecoin of sorts as it represents $1 deposited into Curve’s 3Pool which is a basket of USDC, DAI and USDT. Technically, 3Crv should always remain within a couple pennies of $1, but theoretically anything could happen. For example, what if Tether announced they lost everyone’s money? 😉 Suffice to say, unlike borrowing against a volatile asset like BTC or ETH, borrowing against stablecoins is relatively safe allowing for very high loan-to-value ratios.
For the example, we’re going to borrow 750 MIM which results in a liquidation price of $0.8494 which is pretty damn safe. 3Crv has never dropped anywhere’s near this low a price.
A few important metrics displayed while doing this include:
- Maximum collateral ratio: 90% – The maximum amount of debt you can borrow. For example, max MIM you can borrow against 1,000 cvx3pool is 900
- Liquidation fee: 4% – If the price of 3Crv drops below your liquidation price, your position will be flagged for liquidation and your position will be sold with this fee taken out
- Borrow fee: 0.5% – A fee charged every time you borrow MIM
- Interest: 0.5% – The cost to borrow. The amount you owe will increase this much every year.
The crazy magical thing about this is that your CRV and CVX rewards continue to accumulate in Convex while you now have a fresh 750 MIM in your wallet. And even crazier than that, is you can swap MIM for USDC on Curve at an even better than 1:1 ratio and repeat the entire process!
And just when you thought that was crazy enough, Abracadabra actually has a built in feature for automating this loop up to 10x using a flashloan! Instead of simply borrowing MIM, you can click Change Leverage which results in a warning:
Follow the warning! Read the docs, and understand what you’re getting yourself into. Again, we’re doing this with stablecoins, so it’s relatively safe, but still, proceed with caution. First, we see 1x leverage which is exactly the same as the borrow example we did earlier. The Expected APY of 9.1209% is the APY we’re currently earning in CRV and CVX rewards through Convex.
But if we were to go through that entire process again, of depositing in Curve, Staking in Abracadabra, Borrowing MIM and Swapping for USDC ten times, we could expect to earn 32.5258% APY!
As you can see, this does not mean 10x leverage, this means looping through the process 10x using the loan-to-value ratio you selected above.
Unfortunately at the time of writing this, there was only 1.39k of MIM available for borrowing so we snagged it while we still could! The Abracadabra team replenishes the vaults when they run low. The day before writing this, they replenished the cvx3pool vault with $20M MIM and it was already used up!