Key Takeaways:
- MIM stablecoin fell 50% below its $1 peg on June 24
- Abracadabra raised interest rates across all Cauldrons to encourage debt repayment
- The depeg risks triggering liquidations and contagion across DeFi protocols
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MIM stablecoin drops 50% as Abracadabra raises rates across all Cauldrons
MIM, the dollar-pegged stablecoin from Abracadabra, fell 50% below its $1 peg on June 24, prompting the DeFi lending protocol to raise interest rates across all Cauldrons to encourage debt repayment.
"We're acutely aware of the MIM depeg and are taking emergency actions to remedy the situation," the Abracadabra team said on June 24.
The protocol will gradually increase borrowing costs across all Cauldrons, including deprecated markets, to incentivize borrowers to close positions and reduce the outstanding MIM supply of about $104 million, according to CoinMarketCap. The depeg began in mid-June, when MIM slipped to $0.74 before a brief recovery to $0.89, then plunged to $0.49 on Wednesday.
The depeg shows that even overcollateralized DeFi stablecoins can break their peg in thin-liquidity environments, raising the risk of a bank-run scenario where mass redemptions cascade across protocols that rely on MIM as collateral or liquidity.
The rate hike came less than 10 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," the team said at the time.
The broader crypto market fell about 3%, or roughly $60 billion, in the past 24 hours, with Bitcoin briefly dropping below $60,000.
"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 Abracadabra team said. "Our priority is simple: restore confidence, improve market structure, and return MIM to a healthy (and liquid) peg."
If the depeg deepens, it could trigger widespread liquidations across Abracadabra's lending pools and cause a loss of confidence in MIM as a stable asset, potentially spreading to other DeFi protocols that rely on MIM as collateral or liquidity.
This article is for informational purposes only and does not constitute investment advice.
