Use sSPELL to allow MIM reservation on cauldrons

tags: Abracadabra sSPELL MIM

Credits to smhagain on Discord for bringing this idea up and helping writing it.

Informations

• sSPELL : Staked SPELL, the native token of Abracadabra. Currently sSPELL is used to receive a share of the platform fees, and to vote on governance proposals.
• Cauldron : part of the Abracadabra system where an user can deposit an interest bearing asset ( ibAsset ) as collateral, and borrow MIMs against it. Each cauldron is segregated from the others, and has it's own parameters.
• Replenishes : Currently, the amount of MIMs borrowable from a cauldron is determined by the team and therefore is capped at a maximum. Upping that max amount of MIMs borrowable is refered as a replenish.

Replenish example :

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Thought process

Cauldron usage

In it's current state, the borrowing system of Abracadabra is a first-comes first served model. This model can be pretty hard for some users to be a part of as the borrowable MIMs goes away pretty fast, sometimes took out by bots waiting for replenishes.

The wMEMO cauldron is a good example of that as everytime it gets replenished, it's emptied in a few minutes, and many users can't even interact with it. This creates a lot of frustration for users as they can't borrow/leverage, and lose money in the form of gas fees when the transaction is aborted.

Even if the fact that the borrowing happens so fast shows a great interest in Abracadabra, we believe that growing frustration is not a good way forward.

The current system mostly disalign the interest of MIM borrowers and SPELL stakers. A borrower can simply be a mercenary stablecoin yield chaser, intend to borrow as much MIM as possible with his/her asset to farm for Curve's SPELL incentive. While the borrower never has any alignment to ensure SPELL long term success, thus sell off SPELL reward immediately. This proposal would align the motivation for MIM borroers and SPELL holders closer, in that it would prioritize those who already invested in SPELL to be able borrow MIM more readily.

SPELL and sSPELL incentives

As of right now, the main purpose of SPELL is to be staked as sSPELL, this give users access to two things :

• A share of the platform fees in the form of a SPELL buyback and distribution. ( MIM fees from the platform are used to buy SPELL on the market, and those are then distributed proportionnaly to stakers ).
• A voice to vote on the governance proposals.

Even if those 2 things are already a good incentive to participate in staking, sSPELL could also be used to paliate to the borrowing problem exposed previously.

Currently the SPELL emission is big to allow for Abracadabra expansion and for liquidity attraction ( bribes, liquidity farming rewards ). Those don't necessarily have to be cut off, but it is natively adding a lot of sell pressure on the token as some people farm and dump it instead of going into staking.

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The proposal

The proposal would be to create some sort of "reservation pool" for the replenishes.

When a replenish is in preparation, a part of it would be allocated to that reservation pool and the rest would be made available like it currently is.

To take part in the reservation pool, users would have to have staked SPELL in their wallets. They could then choose the cauldron they're interested in and the amount they would like to borrow.

A option for those who don't want to hold sspell could also be implemented. The idea would be some sort of weekly subscription that allows access to the "The Coven" ( rekam's term for the reservation ). All the subscription revenue would also go to SPELL stakers.

Alternatively, the team can allocate a fixed percentage ( for example 25% ) of total MIM in a cauldron exclusively for SPELL stakers. But the exclusivity for this allocation will expire after N hours before opening up to all non-stakers. And within the the N-hour window, stakers can borrow up to some multiplier of their sSPELL holding. For example if they hold $1000 worth of sSPELL and the multiplier is 5x, then they can borrow up to maximum amount of $5000.

This can give the Abra team a good overview of the interest of certain cauldrons relative to others, and allow them to adjust the replenish if needed.

When the teams feels like there's enough interest, they can then decide of the replenish amount, and take a snapshot of the people who reserved a spot by staking. This process shall remain random, like current replenishes, to prevent any front running operation.

This would be beneficial in different ways :

• Incentives to stake SPELL as an Abracadabra user on top of the fees redistribution.
• Allow users who are long term believers of the project to use the borrowing/leverage functions.
• Counter bots that don't have any stake into the protocol and are abusing the mechanism.
• Have more fairness in the replenish mechanism.

Ideally this system would be put up on every chain Abracadabra is deployed on. Now that sSPELL is available there, something might be doable even if it's not direct staking.

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Final details

Following details should be discussed :

• What percentage of the replenish should be allocated to the stakers ?
• Do stakers get a reservation depending on their sSPELL amount, or on their staking time ( the longer they staked, the greater share they can reserve ) ? Adding a lock up period could be good to prevent MIM scoop up by whales.
• Is a lockup period for sSPELL required to access this reservation or just plain staking ?

Messages pasted from discord

nivtuckio —
This is a great idea. Open MIM replens to “stake holders” only for 1-2 days at a % of the users holding based on the replen amount. A snapshot is taken just as the replen happens, which still happens at randomish intervals as it is today. This will reward staking and incentivise large buys.
After the 2 days say, the remaining is open to all
Snapshot creates a whitelist and amount allowed per staker

0xV | hue —
Reservation pool
Which also benefits devs making projections because you can see the interest in releasing mim from the lockup

Side note : the Curve system giving benefits to people locking their CRVs ( boosted rewards for LPs on top of fees sharing ) was mentionned during the discussion. Based on that model, we could also see a Convex-like protocol for pool reservation on behalf of users in exchange of a fee. People would lock their SPELLs on this platform, get their share of the fees and would access a part of the borrowable amount baed on different parameters ( this is just an idea and might not be technically doable/useful ).

That's pretty much it, remember that this is only a draft proposition. We encourage everyone in the community to speak up about such a change as it is quite impacting. Abracadabra team's opinion would be also great to hear on this as it would require quite some work for them.

Again huge thanks to smhagain from the Discord for bringing this up and helping for the writing, and to the community for the discussions around it ( rekam I see you ).