“Degen” traders are likely salivating at an announcement by DeFi’s rising star Daniele Sestagalli, claiming that they will soon be able to earn high yields from their stablecoins thanks to a new cross-chain, leveraged yield farming protocol.
The Abracadabra founder said today on Twitter that a protocol which connects Ethereum with the Terra blockchain to yield farm with leverage has been tested and deployed.
The recently announced partnership with Terra is already taking shape with the imminent launch of Terra’s UST stablecoin as collateral on the platform.
How It Works
Anchor Protocol is one of the most popular dapps on the Terra blockchain and continues to attract DeFi users with its fixed 20% yield on UST, the stablecoin native to Terra.
Now, Abracadabra is bringing the Anchor offering to Ethereum and will allow users the option to boost their Anchor returns through leveraged yield farming.
First, the user deposits UST as collateral on Abracadabra. Behind the scenes, UST is automatically bridged to Terra and supplied on Anchor to earn (almost) 20%.
Next, the user is able to borrow up to 90% of their deposited UST value in MIM (Magic Internet Money), which is Abracadabra’s overcollateralized stablecoin that functions similarly to DAI. The borrowed MIM is swapped for more UST, which is again deposited as collateral to earn more yield on Anchor.
This process can be repeated multiple times with a relatively low risk of liquidation since both UST and MIM are stablecoins that have maintained a tight $1 peg.
With regulators around the world setting their sights on stablecoins, UST and MIM could be among the beneficiaries if DeFi users begin to turn away from custodial options like USDT and USDC.
Risk Warning: When leverage is involved, there is always a risk of liquidation if either asset were to depeg drastically, so please ape responsibly.
Disclosure: The author holds positions in SPELL and LUNA and will be using this product when launched.