Abracadabra raises interest rates as MIM stablecoin depeg worsens

A stablecoin trading at half its intended value is, by definition, not very stable. Magic Internet Money, the dollar-pegged token issued by DeFi lending protocol Abracadabra.money, plunged to approximately $0.50, marking a decline of roughly 36% in just 24 hours.

The protocol’s response: crank up interest rates across every single Cauldron, including deprecated markets, to pressure borrowers into repaying their debts and pulling MIM out of circulation.

What Abracadabra is actually doing

Borrowers mint new MIM tokens by depositing collateral into Abracadabra’s lending vaults, called Cauldrons. When the stablecoin trades below $1, those borrowers can theoretically buy MIM at a discount on the open market and use it to repay their debt at face value, pocketing the difference. By raising interest rates, Abracadabra is making the cost of holding outstanding MIM debt increasingly painful, creating pressure for rational borrowers to close positions by buying discounted MIM, which in turn creates buying pressure and contracts supply.

The protocol also suspended direct incentives and Curve bribes until MIM returns to its peg, redirecting every resource toward restoring the peg rather than growing the ecosystem.

The trouble started earlier in the month. On June 15, MIM was already trading around $0.82, an 18% depeg that prompted a $100,000 liquidity injection into the primary MIM Curve pool. Three days later, on June 18, Abracadabra announced a liquidity incentive program distributing 140 million SPELL tokens to try to shore up pool depth.

Neither measure proved sufficient. The depeg accelerated instead of healing, culminating in the drop to $0.50 that triggered the current emergency measures starting June 24.

A pattern of instability

This is not MIM’s first crisis. In January 2024, a smart contract exploit drained approximately $6.5 million from the protocol. Another exploit in 2025 resulted in losses of roughly $1.7 million. Both incidents were accompanied by depegging episodes.

What this means for DeFi investors

The immediate risk is contagion through liquidity pools. MIM is paired with other stablecoins in Curve Finance pools, and a sustained depeg can create imbalances that affect liquidity providers holding those positions. When one side of a stablecoin pool loses its peg, LPs end up holding a disproportionate amount of the depegged asset.

Traders who borrowed MIM against collateral face a different calculation. The rising interest rates create urgency, but the discounted MIM price also creates opportunity. Anyone holding collateral in a Cauldron can effectively repay their debt at roughly 50 cents on the dollar if they buy MIM on the open market.

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