Abracadabra, the decentralized finance lending protocol behind the Magic Internet Money (MIM) stablecoin, launched emergency measures after MIM fell more than 50% below its $1 peg. The protocol is raising interest rates across its lending markets to encourage borrowers to repay loans and reduce MIM's circulating supply. Crypto-backed stablecoins can face instability when liquidity dries up or large holders exit liquidity pools, despite being backed by excess collateral.
Abracadabra Raises Interest Rates Across Lending Markets
The Abracadabra team stated that the primary response will be a gradual increase in interest rates across all of its lending markets, known as Cauldrons, including older and deprecated markets. The move is designed to encourage borrowers to repay their outstanding loans, thereby reducing the circulating supply of MIM. Since borrowers can now purchase the depegged stablecoin at a massive discount on the open market and use it to repay debt valued at face value, the protocol believes this creates a natural incentive to accelerate debt repayments and permanently remove MIM from circulation.
Abracadabra stated that shrinking the token supply is one of the most effective ways to help restore the stablecoin's peg. By increasing borrowing costs, users are encouraged to close positions rather than continue holding debt, which could ultimately reduce the amount of MIM in circulation and improve the balance between supply and demand. The team clarified that its immediate priorities are restoring confidence in the stablecoin, improving market structure, and returning MIM to a healthy and liquid dollar peg.
Magic Internet Money is a crypto-backed stablecoin that launched in May of 2021. Unlike fiat-backed stablecoins that hold cash or Treasury reserves, MIM is minted by depositing interest-bearing crypto assets as collateral through Abracadabra's lending platform. The protocol operates on multiple blockchains and allows users to borrow MIM against their crypto holdings while earning yield on their collateral.
MIM Price Plunged from Mid-June Through Press Time
The depeg began in mid-June when MIM slipped to approximately $0.74 before briefly recovering to around $0.89. However, selling pressure intensified, which caused the stablecoin to plunge to roughly $0.49. At press time, MIM was able to make an impressive recovery and was trading at $0.95.
Protocol Injected $100,000 into Curve Finance Pool on June 15
On June 15, shortly after MIM first began trading below its peg, the protocol injected $100,000 into its primary liquidity pool on Curve Finance. The liquidity injection was made to restore balance across Curve pools after unexpected liquidity withdrawals that the team attributed to recent changes in DeFi incentive strategies. While the move temporarily supported liquidity, it was ultimately not enough to prevent the stablecoin from experiencing a much deeper depeg.
FAQ
What did Abracadabra do after MIM depegged?
Abracadabra launched emergency measures including raising interest rates across all lending markets (Cauldrons) to encourage borrowers to repay loans and reduce MIM's circulating supply.
How far did MIM fall below its $1 peg?
MIM fell more than 50% below its $1 peg, plunging to approximately $0.49 during the depeg event that began in mid-June.
What was MIM trading at by press time?
At press time, MIM had recovered to $0.95 following the protocol's emergency measures.
