The DeFi Lending Agreement, Abracadabra, launched an emergency programme after its stable currency, Magic Internet Money (MIM) was significantly defunct, in an attempt to reduce the volume of traffic by increasing the cost of borrowing, and to push prices back closer to $1. At one point, MIM fell by more than 50 per cent over anchor pricing, and since then it has picked up, with an estimated $0.95 at the time of reporting.
Raise the full-line lending rate
Abracadabra states that interest rates will be raised gradually in “Cauldons” for all lending markets under its umbrella, covering not only current active markets but also earlier and decommissioned markets.
The objective of this approach is to enable borrowers to repay outstanding loans as soon as possible and to reduce the number of MIMs in circulation on the market. Since MIM is already significantly below US$ 1, the borrower can buy it in the secondary market at a discount and repay it at nominal value, which increases the willingness to pay back.
A hundred thousand dollars has not stopped.
Prior to the current round of more radical measures, Abracadabra had tried to stabilize prices through additional liquidity. On 15 June, after MIM first broke the anchor, the agreement injected $100,000 into Curve Finance ' s main liquidity pool.
The team claimed at the time that the effort was to repair the pool imbalance that had emerged following the withdrawal of liquidity, and that the fluctuations were related to the recent changes in DeFi incentive strategy. However, the funding was only short-lived and failed to prevent MIM from falling further.
Liquid contraction zoomed out of anchor
MIM was introduced in May 2021 as an over-collateralized currency for encrypted assets. Users can deposit the income-producing encrypted asset on the Abracadabra platform as collateral and lend MIM.
Unlike the French reserve, these models rely more on collateral quality and secondary market liquidity. Even with over-collateralization, prices may deviate significantly from the anchor when liquidity declines, market sentiment weakens or when large amounts of money exit the liquidity pool.
In the light of the current programme in Abracadabra, the team hopes to recover supplies by raising interest rates and promoting repayments before gradually restoring market liquidity and price stability.