After datamining, modders found out the behavior list for magic powder.

Its uses are:
- Cooks food
- Transmutes keys into bombs and vice-versa
- Transforms barrels into potion stands which splash a random potion effect upon breaking them
- Using it on vines, plant pots, and any other plant breakable that usually has a chance to spawn an elderseed will guarantee the drop.
- Transforms skeleton corpses into a random type of skeleton familiar.
- Using it on skulls will revive it into a random type of skeleton enemy.
- Increases Size/Blast Size of placed bombs slightly, and resets the fuse time, this can be spammed as long as you have mana to increase it to incredible sizes.
- Turns spinning blades into iron
- Duplicates blessings once (Careful as the duplicated blessings which are created have 1 hp, and will break instantly once hit, you also cannot further dublicate already duped blessings)
- Revives the cute Bobo's which are laying on the ground, being stepped over in their rug form with no remorse. (from @Raz_Dwa_Trzy_Dedasz_Ty)
- Can be used on oil barrels, although I still havent tested what this results into.
- When used on Artesias Towers, it spawns more of them
- Turns chests into mimics and mimics into chests. (from @NerdyNinja64)
A little neat trick to know whether a chest is normal or a mimic. If you take a close look at any unopened chest, they sparkle, normal chests have yellow/gold sparkles around them while mimics have red ones. Hope this helps everybody!

Careful, the following use of magic powder is a spoiler which is tied to Journal completion.
-When used on the Boomerang (relic), it will transform it into the Magic Boomerang (relic), which is Rare compared to the Common default version of it, and has a new effect of stunning enemies upon hitting them.

Keep in mind, this little guide is temporary, a possible official guide will be created sometime along the development of the game, with information straight from the database, therefore this serves as a simple replacement until then.

There are lots of people which can help you with your problems and answer your questions in the discord server. You can join it from the front page of the game or by using this link.
You can also ask me questions in the comment section, I will gladly answer with any information I have.

https://discord.gg/DA7554YZ