Abracadabra Rolls Out Emergency Steps to Bring MIM Back Toward Its $1 Peg
Abracadabra has triggered an emergency response after its stablecoin, Magic Internet Money (MIM), broke sharply from its $1 peg, according to CoinDesk. The DeFi lending protocol said it will shrink MIM supply by raising borrowing costs across its platform in an effort to push the token back toward parity.
MIM at one point traded more than 50% below its peg before rebounding. At the time of reporting, it was changing hands around $0.95.
Broad rate hikes across "Cauldrons"
Abracadabra said it will progressively increase interest rates across all of its lending markets, known as "Cauldrons", covering both currently active markets and older markets that have been deactivated. The protocol's objective is to encourage borrowers to repay outstanding loans quickly, reducing the amount of MIM in circulation.
With MIM still below $1, borrowers can buy the stablecoin at a discount on secondary markets and repay debt at face value, strengthening the incentive to deleverage.
$100,000 liquidity injection offered only brief support
Before turning to more forceful measures, Abracadabra attempted to defend the peg by adding liquidity. On June 15, shortly after MIM first slipped below $1, the protocol injected $100,000 into Curve Finance's main MIM liquidity pool.
The team said the funds were meant to counter pool imbalances stemming from liquidity withdrawals tied to recent shifts in DeFi incentive strategies. The support proved temporary and did not stop MIM from falling further.
Thin liquidity can worsen depegs despite overcollateralization
Launched in May 2021, MIM is an overcollateralized crypto stablecoin. Users deposit yield-generating crypto assets as collateral on Abracadabra and borrow MIM against them. Unlike fiat-backed stablecoins, the model is more sensitive to collateral quality and to liquidity available in secondary markets.
Even with overcollateralization, prices can deviate materially from the peg when liquidity dries up, sentiment weakens, or large withdrawals hit liquidity pools. Under the current Abracadabra proposal, the team plans to first contract supply through higher rates and faster repayments, then gradually rebuild liquidity to restore price stability.
