Abracadabra has moved to stabilize its dollar-pegged stablecoin Magic Internet Money (MIM) after the token fell more than 50% below its $1 peg. The DeFi protocol said it is rolling out emergency measures that increase borrowing costs across its lending system in order to encourage repayments and reduce the outstanding supply.
In a message posted Wednesday, Abracadabra acknowledged the MIM depeg and said the response will begin immediately. The plan centers on gradually raising interest rates across its “Cauldrons,” including markets it flagged as deprecated, aiming to spur debt repayment and contract MIM circulation.
Key takeaways
- Abracadabra launched emergency steps after MIM dropped at least 50% below its $1 peg.
- The protocol’s immediate lever is higher Cauldron interest rates to make borrowing more expensive and encourage repayments.
- MIM is minted against yield-bearing collateral, but it depends on sufficient liquidity in DeFi markets—an area where thin liquidity can worsen depegs.
- Recent volatility in broader crypto markets appears to be coinciding with selling pressure around MIM.
- A prior liquidity injection into Curve was intended to support peg stability, but the stablecoin still depegged further.
Emergency rates as MIM trades far below $1
Abracadabra described the current depeg as creating an incentive structure for borrowers. When MIM is trading at a discount to $1, borrowers can repay their debt for less than they originally owed, which should reduce circulating supply and help push the price back toward the peg. The protocol said its priority is to restore confidence, improve the market structure, and return MIM to a “healthy (and liquid) peg.”
Operationally, Abracadabra said it will begin gradually increasing interest rates across all Cauldrons. That includes both active and deprecated markets. By raising the cost of maintaining debt positions, the mechanism is designed to accelerate repayment, reduce MIM supply, and—if liquidity conditions cooperate—support a return toward $1.
“Our priority is simple: restore confidence, improve market structure, and return MIM to a healthy (and liquid) peg.”
How MIM’s design can amplify stress
MIM is an omnichain DeFi stablecoin built within Abracadabra’s lending framework. The protocol mints MIM by allowing users to borrow against interest-bearing tokens that sit inside its Cauldrons. While the system is collateralized, it remains exposed to market microstructure issues—particularly liquidity.
The depeg underscores a recurring structural vulnerability in crypto-collateralized stablecoins: even if the underlying collateralization is designed to absorb volatility, the stablecoin’s ability to maintain its peg depends heavily on liquidity depth in exchange venues. When liquidity is thin or imbalanced, selling pressure can push the stablecoin further away from $1, making recovery harder and potentially triggering additional discount dynamics.
The protocol’s own framing points to the difference between holding a theoretical peg and maintaining real-world liquidity. In stressed conditions, the presence or absence of deep pools can determine whether the market clears in a way that allows price to gravitate back toward $1.
From brief recovery to a deeper depeg
According to CoinMarketCap, MIM began to unravel in mid-June, when it slipped as low as around $0.74. It then briefly recovered to about $0.89, before falling again to roughly $0.49 by Wednesday. At the time of reporting, CoinMarketCap listed MIM’s circulating supply at about $104 million.
The sequence is notable because it shows how quickly stablecoin markets can oscillate during periods of reduced confidence. The earlier bounce did not hold, suggesting that the underlying liquidity or demand conditions that support peg stability were not fully restored—an issue Abracadabra is now attempting to address with its rate adjustments and additional incentives.
Liquidity support on Curve—and why it may not have been enough
Abracadabra’s current emergency plan arrives less than ten days after it attempted to shore up liquidity following the stablecoin’s first slip. On June 15, when MIM first moved away from its peg, the protocol said it injected $100,000 into its primary liquidity pool on Curve Finance. Abracadabra described that injection as a base for liquidity to help restore balance across Curve Pools after “unexpected liquidity withdrawals” linked to changes in DeFi incentive strategies.
Curve remains central to MIM’s liquidity pathway. Abracadabra’s Cauldrons rely on crypto collateral, and MIM’s peg stability is closely tied to how effectively liquidity providers and trading venues absorb flows. In this case, even after the Curve injection, MIM continued to deteriorate—suggesting that liquidity provisioning alone may not counteract wider market risk when stablecoin confidence fades.
Thin liquidity can create a feedback loop: weaker demand and heavier selling pressure worsen the price, while the price dislocation can further disrupt trading and liquidity behavior. Abracadabra appears to be betting that higher borrowing costs will realign incentives enough to reduce supply pressure faster than liquidity can deteriorate.
Broader market risk adds to the pressure
The MIM depeg also coincided with weakness across the broader crypto market. The article notes that the overall market was down about 3% over the prior 24 hours, while Bitcoin briefly dropped below $60,000. In such environments, stablecoins can face competing forces: traders may seek liquidity, liquidity providers may step back, and depegs can become more likely as market participants become more cautious.
For holders and traders of MIM, the immediate question is whether Abracadabra’s interest-rate intervention can reduce effective supply faster than liquidity conditions can worsen. If repayment behavior accelerates as intended, MIM could regain strength—though the speed of recovery will likely depend on how quickly market liquidity re-stabilizes around the $1 target.
Going forward, readers should watch MIM’s price relative to $1, changes in liquidity depth around Curve pools, and whether Cauldron repayment activity increases as rates rise—because those factors will determine whether this emergency response produces a durable return to the peg or merely delays further stress.
This article was originally published as Abracadabra Issues Emergency Measures as MIM Stablecoin Depeg Escalates on Crypto Breaking News – your trusted source for crypto news, Bitcoin news, and blockchain updates.
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