Decentralized finance platform Abracadabra said Wednesday that it launched emergency measures after its crypto-collateralized stablecoin, Magic Internet Money (MIM), fell 50% below its $1 peg.
“We’re acutely aware of the MIM depeg and are taking emergency actions to remedy the situation,” the team said on Wednesday.
It said effective immediately, it will begin gradually “increasing interest rates across all Cauldrons, including deprecated markets, to encourage debt repayment and reduce the outstanding MIM supply.”
The MIM depeg is a stark reminder that even overcollateralized DeFi stablecoins can be fragile in thin-liquidity environments and bear markets, underscoring the persistent risks of crypto-backed money.
Abracadabra describes itself as an omnichain DeFi lending platform that utilizes 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 slipped to 74 cents before a brief recovery to 89 cents, then plunged to 49 cents on Wednesday, according to CoinMarketCap. The current circulating supply of MIM is about $104 million.
MIM depeg exceeds 50%. Source: CoinMarketCap
“The current depeg creates a natural incentive for borrowers to repay debt at a discount, accelerating 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) peg.”
By raising Cauldron interest rates, the protocol makes it more expensive for borrowers to maintain positions, encouraging repayment that burns MIM, contracts supply and helps restore the peg.
It comes less than ten days after Abracadabra injected $100,000 into its primary liquidity pool on Curve Finance on June 15, when the stablecoin first slipped from its peg.
“This will serve as a base for liquidity to restore balance across Curve Pools after unexpected liquidity withdrawals due to recent DeFi incentive strategy changes,” it said at the time.
Cauldron liquidity is thin
The DeFi stablecoin is minted by borrowing against yield-bearing tokens in Abracadabra’s “Cauldrons,” but it relies on crypto collateral and deep liquidity pools, primarily on the Curve Finance platform, to maintain its $1 peg.
Thin and imbalanced liquidity in decentralized exchange pools is fueling selling pressure that makes the stablecoin vulnerable to further depegging, potentially amplified by broader market caution.
The broader crypto market has fallen about 3%, or roughly $60 billion, in the past 24 hours, with Bitcoin briefly dropping below $60,000.