Decentralized finance platform Abracadabra announced on Wednesday that it had launched emergency measures after its crypto-secured stablecoin Magic Internet Money (MIM) fell 50% below $1.
“We are aware of the MIM depeg issue and are taking emergency action to address the situation,” the team said he said on Wednesday.
It said that, effective immediately, it would begin gradually “raising interest rates across all Cauldrons, including legacy markets, to encourage debt repayments and reduce the remaining supply of MIM.”
Depeg MIM is a stark reminder that even over-collateralized DeFi stablecoins can be frail in low-liquidity environments and bear markets, highlighting the persistent risks associated with cryptocurrency-collateralized money.
Abracadabra describes itself as an omnichain DeFi lending platform that uses interest-bearing tokens as collateral to mint MIM, a dollar-pegged stablecoin that launched in May 2021.
MIM’s troubles began in mid-June when it fell to 74 cents before briefly rebounding to 89 cents before falling to 49 cents on Wednesday. According to to CoinMarketCap. The current circulating supply of MIM is approximately $104 million.
MIM depeg exceeds 50%. Source: CoinMarketCap
“The current depeg creates a natural incentive for borrowers to repay debt at a discount, accelerating the supply contraction and strengthening the path back to the peg,” the team said.
“Our priority is simple: restore confidence, improve market structure and get MIM back on a healthy (and smooth) course.”
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By raising Cauldron interest rates, the protocol makes it more high-priced for borrowers to hold a position, encouraging repayment that burns MIM, reduces supply, and helps restore the peg.
It comes less than ten days after Abracadabra injected $100,000 into its main liquidity pool at Curve Finance on June 15, when the stablecoin first dropped its peg.
“This will provide a liquidity foundation to rebalance Curve Pools following unexpected liquidity withdrawals due to recent changes to DeFi incentive strategy,” it said at the time.
The boiler’s liquidity is low
The DeFi stablecoin is minted by lending against yielding tokens in Abracadabra Cauldrons, but relies on crypto collateral and deep pools of liquidity, primarily Finance curve platform to maintain the $1 exchange rate.
Low and unsustainable liquidity in decentralized exchange pools is increasing selling pressure that makes the stablecoin vulnerable to further weakness, potentially reinforced by broader market caution.
The broader cryptocurrency market is down about 3%, or about $60 billion, in the last 24 hours because of Bitcoin it briefly fell below $60,000.
