Is MIM challenging MakerDAO? Understanding the three DeFi projects of MIM's creator
The founder of Abracadabra, Daniele Sestagalli, also sparked the "Occupy DeFi" craze through the LP yield optimizer Popsicle Finance and the OlympusDAO fork project Wonderland on Avalanche.Written by: Karen
In the past two months, the governance token SPELL of the interest-bearing asset lending protocol Abracadabra has surged 60 times, with the total locked value skyrocketing 7 times to nearly $3 billion. Daniele Sestagalli, the founder of Abracadabra, has gained significant attention in the crypto community, and his ventures in the crypto space go beyond this, with LP yield optimizer Popsicle Finance and the OlympusDAO fork project Wonderland on Avalanche also being his "masterpieces."
According to public information, Daniele Sestagalli graduated from the architecture department of the University of the Americas in Panama. Before building these three projects, he founded the blockchain startup Zulu Republic in 2016 and served as the Chief Strategy Officer of the blockchain-based music technology platform Utopia Genesis Foundation.
Abracadabra: Challenging MakerDAO?
The rapid momentum of Abracadabra is the main driver behind Daniele Sestagalli's increased visibility. Abracadabra allows users to borrow the dollar-pegged stablecoin MIM (Magic Internet Money) by depositing interest-bearing assets. It currently supports Ethereum, Binance Smart Chain, Avalanche, Fantom, and Arbitrum One, and has launched features such as farming, lending, staking, swapping, and cross-chain bridges. For more details on Abracadabra's specific functions and dual token model, refer to the article "How Abracadabra on Arbitrum Builds an On-Chain Stablecoin Protocol with Interest-Bearing Assets?."
With its multi-chain deployment, support for various interest-bearing assets, and the ability to borrow stablecoins using a few cryptocurrencies to enhance capital efficiency, it is reasonable to say that "Abracadabra is challenging the leading stablecoin protocol MakerDAO." For instance, MIM's circulation has surpassed $1.8 billion, currently accounting for 26% of Dai. According to CoinGecko data, in terms of stablecoin circulation, it has surpassed Pax Dollar (USDP) and TrueUSD (TUSD), ranking sixth; the total locked value has reached one-fifth of MakerDAO; the number of SPELL holding addresses has reached 23,000, close to one-third of MKR; and in the past week, the fee income from sSPELL on the Ethereum chain has been twice that of MakerDAO.
In recent developments, Abracadabra has also partnered with Terra. According to The Defiant, the collaboration may include a MIM-UST liquidity pool and LUNA collateral, allowing users to borrow MIM using their LUNA tokens. Another core contributor to Abracadabra, Squirrel, has proposed a partnership with Tornado.cash to develop MIM into a privacy-focused stablecoin, although the specific details of the collaboration are currently unclear.
Abracadabra co-founder Squirrel told The Defiant that the secret to the project's success is multifaceted. The composability feature that almost exclusively supports interest-bearing assets as collateral retains the interest of those assets while allowing users to borrow funds simultaneously. On the other hand, Abracadabra's fee structure is also very attractive, with 75% of the protocol fees used to buy SPELL, which is then distributed to sSPELL holders, and 20% allocated to the treasury to incentivize the MIM liquidity pool.
Popsicle Finance: LP Yield Optimizer
Before launching Abracadabra, at the end of the first quarter of this year, Daniele Sestagalli and Squirrel launched a multi-chain yield optimization platform, Popsicle Finance (ICE), for users looking to provide liquidity. Popsicle means ice pop. The mechanism of Popsicle Finance is to automatically compare the liquidity pools of multiple AMM mechanisms on various blockchains after receiving user-provided assets, to deploy funds into the most yield-optimal pools.
Popsicle Finance supports networks including Ethereum, Binance Smart Chain, and Fantom, with plans to support Tron, Polygon, Solana, and Polkadot. The products include Sorbetto Fragola designed for Uniswap V3, the LP yield optimizer Sorbetto Limone, the lending protocol Gelateria, and the USDT wrapper Frapped.io.
Among them, Sorbetto Fragola is specifically designed for Uniswap V3 to introduce range orders, actively helping users manage liquidity and enhance capital efficiency on Uniswap V3 based on historical volatility data. For users, by depositing either a single-sided asset or a corresponding real-time ratio of a two-sided asset through Sorbetto Fragola, they can receive the share token PLP (Popsicle Liquidity Provision), while other strategy parameters are managed by the strategies running on Sorbetto Fragola.
Sorbetto Limone, as mentioned earlier, is the multi-chain liquidity yield optimizer that will deploy users' liquidity to the most yield-optimal decentralized exchanges across multiple networks. Currently, Sorbetto Limone is still under development and may launch soon. For liquidity providers, they can enjoy optimal yields without manually checking and switching liquidity, saving a significant portion of gas fees. For the entire ecosystem, liquidity will also become more efficient, allowing traders to enjoy the best prices.
At the same time, Daniele Sestagalli maximizes the role of the LP token PLP on the platform. According to Popsicle Finance documentation, a lending protocol Gelateria will be launched, allowing users to collateralize LP tokens PLP to borrow assets. Additionally, Frapped.io has launched FUSDt on Binance Smart Chain and Fantom Opera.
Regarding the governance token ICE, in July of this year, the Popsicle Finance team proposed to burn 64.98% of the originally planned total supply (mainly to burn potential LP rewards) after weighing the protocol's marketing budget, incentive schemes, and the project's popularity, and the proposal was approved and completed within a few days.
So, how does the governance token ICE function on the Popsicle Finance platform? In addition to governance, all performance fees charged by the platform's products (currently 10% of profits, with a proposal to increase to 20%) will be distributed to nICE holders in the form of ICE. nICE is the deposit certificate obtained by users who stake ICE in the nICE pool.
Unfortunately, in early August this year, Popsicle Finance suffered a hack, losing approximately $20 million. Subsequently, the affected Sorbetto Fragola product was taken down, and plans were made to restart after undergoing a quadruple audit process. At the same time, Popsicle Finance released a unique compensation plan, first obtaining a $1 million loan from IronBank to repay 5% of the affected funds, and then securing at least $500,000 in loans each month to repay user funds. Additionally, Popsicle Finance will create two NFTs, one airdropped to affected users and the other (10,000 in total) sold through auction, with the proceeds used to repay the stolen funds. On the other hand, Daniele Sestagalli also promised to take out 1 million ICE from his personal allocation to repay affected users within a year.
It can be seen that after the hack, Popsicle Finance responded quickly in terms of security processes, protocol restart planning, and compensation, proposing a compensation plan that users found relatively satisfactory. Interestingly, the price of ICE, which dropped about 40% on the day of the hack, surged 16 times to around $24 within two months. Based on the current price, the value of the 1 million tokens that Daniele Sestagalli promised to compensate has already exceeded the stolen funds.
Wonderland: OlympusDAO Fork Project on Avalanche
The algorithmic stablecoin project Wonderland (TIME) is also an OlympusDAO fork launched on Avalanche, with "Wonderland" meaning "fairyland" in Chinese. The project was initially anonymous, but later, Daniele Sestagalli acknowledged its development on Twitter.
In Wonderland, each TIME token is backed by a basket of assets in the treasury, including MIM, TIME-AVAX LP tokens, etc. It also mimics OlympusDAO by introducing staking and minting to combine incentive design mechanisms and game theory. It is important to note that the value of 1 TIME is supported by MIM (rather than pegged), meaning that the trading price of TIME will always be higher than 1 MIM. When the trading price of TIME falls below 1 MIM, the protocol will buy back and burn TIME to push the price of TIME above 1 MIM.
From the user perspective, there are two ways to participate in Wonderland. One is to stake TIME to earn more TIME through automatic compounding. Essentially, after staking TIME, users receive MEMO (staking certificate), and the MEMO balance will automatically increase every 8 hours based on the current yield rate through compounding. The other is minting, which involves providing LP tokens (including TIME-AVAX LP or TIME-MIM LP), MIM, or wAVAX to mint (or purchase) TIME at a discount, but it requires a full release 5 days after minting.
On the other hand, the protocol gains liquidity for its treasury. As the liquidity obtained increases, it can further earn more market maker commissions, increasing protocol revenue. This portion of revenue will be used by the treasury to mint TIME, and then a significant portion will be distributed to TIME stakers, ensuring the stability of the system and PCV (protocol-controlled value).
As of the time of writing, Wonderland's treasury balance is $134 million, with a total staking rate of 87,000 TIME. It is worth noting that Wonderland is currently unaudited and may still have certain security risks.
Summary
In summary, Abracadabra provides users with the ability to borrow MIM using interest-bearing assets, potentially turning MIM into a more widely used DeFi reserve stablecoin. Popsicle Finance will automatically help users place liquidity into the most yield-optimal and liquidity-needy pools, while also launching a lending protocol that allows users to collateralize LP tokens on the platform to borrow assets. Meanwhile, the design of the OlympusDAO fork project Wonderland benefits both the protocol's liquidity and users, potentially forming a positive feedback mechanism.
On the other hand, the more decentralized stablecoin MIM, which allows borrowing against interest-bearing assets, along with the governance tokens SPELL, TIME, and ICE, including their respective staking certificates and interest-bearing assets sSPELL, MEMO, and nICE, can interact and "nest" among these three protocols to maximize capital efficiency.
Under the true decentralized movement "Occupy DeFi" driven by Daniele Sestagalli, he, as the founder of these three projects, has created significant waves by focusing on optimizing liquidity yields, fully utilizing liquidity tokens, and maximizing the capital efficiency of interest-bearing assets, combined with the protocol's fee structure, multi-chain design, composability, and incentive measures.
Although these three products were all launched this year, the execution of the projects has been commendable, achieving good results in terms of product technology, collaborative progress, and project performance. Popsicle Finance has experienced a security incident, but based on community feedback, users seem to recognize the project's response plan and progress. Moreover, Popsicle Finance has relatively few competitors, and with its restart and the upcoming launch of the LP yield optimizer, it will be interesting to see if it can leverage its first-mover advantage to capture a share of DeFi liquidity. However, at the same time, these protocols also face inflationary pressure on governance tokens in the short to medium term, a lack of security audit reports, and risks associated with "nesting" that could lead to liquidation.
References:
https://www.blocmates.com/blogmates/a-complete-guide-to-popsicle-finance-ice-and-nice
https://www.blocmates.com/blogmates/a-complete-guide-to-wonderland-money-time-mim-and-memo
