Decentralized finance platform Abracadabra said on Wednesday it has launched emergency measures after its crypto-collateralized stablecoin, Magic Internet Money (MIM), fell 50% below its $1 mark.
“We are acutely aware of the MIM depeg and are taking emergency action to remedy the situation,” the team said said on Wednesday.
It said it will immediately begin gradually raising interest rates in all boilers, including legacy markets, to encourage debt repayment and reduce outstanding MIM supply.
The MIM depeg is a stark reminder that even over-collateralized DeFi stablecoins can be vulnerable in low-liquidity environments and bear markets, underscoring the persistent risks of crypto-backed money.
Abracadabra describes itself as an omnichain DeFi lending platform that uses interest-bearing tokens as collateral to mint MIM, a dollar-pegged stablecoin launched in May 2021.
MIM’s problems started in mid-June, when the share price fell to 74 cents, followed by a brief recovery to 89 cents, before plummeting to 49 cents on Wednesday. according to to CoinMarketCap. MIM’s current circulating supply 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 return MIM to a healthy (and liquid) link.”
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By raising Cauldron interest rates, the protocol makes it more expensive for borrowers to hold positions, driving repayments that burn MIM, shrink supply and help restore the link.
It comes less than ten days after Abracadabra injected $100,000 in the primary liquidity pool on Curve Finance on June 15, when the stablecoin first slipped out of its peg.
“This will serve as a foundation for liquidity to rebalance Curve Pools following unexpected liquidity withdrawals due to recent changes to DeFi’s incentive strategy,” it said at the time.
Boiler liquidity is scarce
The DeFi stablecoin is minted by borrowing against yield-bearing tokens in Abracadabra’s ‘Cauldrons’, but relies on crypto collateral and deep liquidity pools, primarily from the Curve Finance platform, to maintain its $1 peg.
The thin and uneven liquidity in decentralized currency pools is fueling selling pressure that leaves the stablecoin vulnerable to further depegging, potentially amplified by broader market caution.
The broader crypto market is down about 3%, or roughly $60 billion, in the past 24 hours, thanks to Bitcoin. briefly fell below $60,000.
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