Key facts
- Abracadabra's Magic Internet Money (MIM) stablecoin has fallen 50% below its $1 peg.
- The protocol is raising interest rates across all Cauldrons to encourage debt repayment and reduce MIM supply.
Decentralized finance platform Abracadabra is implementing emergency measures, including raising interest rates across all its "Cauldrons," to address the worsening depeg of its Magic Internet Money (MIM) stablecoin, which has fallen 50% below its $1 target.
The depeg of MIM highlights the inherent risks associated with crypto-collateralized stablecoins, even those that are overcollateralized, especially in volatile market conditions and thin liquidity environments. This event underscores the ongoing challenges in maintaining stablecoin pegs and restoring market confidence within the decentralized finance ecosystem.
Abracadabra, a decentralized finance platform, has initiated emergency actions as its stablecoin, Magic Internet Money (MIM), has fallen significantly below its $1 peg. The protocol announced on Wednesday that it is gradually increasing interest rates across all its "Cauldrons" to incentivize borrowers to repay their debts, thereby reducing the outstanding MIM supply and aiming to restore the peg. MIM's value began to decline in mid-June, initially slipping to 74 cents before a brief recovery. However, it plunged to 49 cents on Wednesday, according to CoinMarketCap data. The current circulating supply of MIM stands at approximately $104 million. The protocol team stated that the depeg creates a natural incentive for borrowers to repay debt at a discount, which should accelerate supply contraction and aid in returning MIM to its intended peg. Their stated priorities are to restore confidence, improve market structure, and return MIM to a healthy and liquid peg. This situation serves as a reminder of the fragility of even overcollateralized DeFi stablecoins, particularly in low-liquidity environments and during market downturns. MIM is minted by borrowing against interest-bearing tokens in Abracadabra's Cauldrons and relies on crypto collateral and deep liquidity pools, primarily on Curve Finance, to maintain its $1 peg. Thin and imbalanced liquidity in decentralized exchange pools is contributing to selling pressure, making the stablecoin vulnerable to further depegging, potentially exacerbated by broader market caution. The wider crypto market has seen a decline of about 3% in the past 24 hours, with Bitcoin briefly falling below $60,000. Less than ten days prior to this announcement, on June 15, Abracadabra had injected $100,000 into its primary liquidity pool on Curve Finance when the stablecoin first showed signs of slipping from its peg. At that time, the platform stated this injection would serve as a base for liquidity to restore balance across Curve Pools following unexpected liquidity withdrawals attributed to recent DeFi incentive strategy changes.