Abracadabra’s MIM crisis deepens as dollar peg breaks again

Abracadabra has started emergency measures after Magic Internet Money, its dollar-pegged MIM stablecoin, slid sharply below its $1 target. 

The DeFi lending protocol said it was “acutely aware” of the depeg and would act to reduce the amount of MIM in circulation.

The team said it would raise interest rates across all Cauldrons, including older markets that users no longer actively use. Cauldrons are Abracadabra’s lending markets, where users post collateral and borrow MIM. Higher rates make open debt more costly, which can push borrowers to repay sooner.

The rate plan covers both live and deprecated markets, so older debt positions remain part of the response. Abracadabra has not set a fixed end date for the emergency changes.

Repayment becomes the main tool

Abracadabra framed the market discount as part of its recovery route. When MIM trades far below $1, borrowers can buy the stablecoin cheaper in the market and use it to repay debt at face value. That repayment burns or removes MIM from debt positions, reducing supply.

The protocol said the current depeg creates a “natural incentive” for borrowers to repay at a discount. It also said direct incentives and Curve bribes would stop until MIM returns to its peg. That marks a shift from rewards for liquidity to a narrower focus on repayment and supply control.

Liquidity pressure hits Curve pools

MIM relies on collateral, borrower activity and liquidity pools to stay near $1. Its main trading venues include Curve pools, where stablecoins need balanced liquidity to support swaps. When liquidity thins or becomes one-sided, selling pressure can move the token further from its target.

Abracadabra had already added $100,000 of MIM, USDT and USDC to a new Curve liquidity pool earlier in June. The team said at the time that the move aimed to restore pool balance after withdrawals linked to DeFi incentive changes. The latest rate action shows that the earlier liquidity step did not fully stop pressure on the peg.

Broader stress and recovery test

Market data showed MIM near $0.50 during the latest depeg update. The break came as crypto markets also weakened. As crypto.news reported, Bitcoin fell below $60,000 for the second time in June and triggered more than $850 million in liquidations.

The MIM crisis also follows a difficult stretch for DeFi security and lending markets. In a previous article, crypto.news discussed an Abracadabra exploit in October 2025, when attackers drained about $1.8 million from Cauldrons after using a logic flaw. That event was separate from the current depeg, but it kept attention on the protocol’s risk controls.

Abracadabra said its priority was to “restore confidence, improve market structure, and return MIM to a healthy peg.” The team also said it was reviewing more recovery plans and would share them once finalized. For now, the plan centers on making debt expensive to hold and cheaper to close.

The next test will come from borrower response and market liquidity. If repayments rise, MIM supply may contract and reduce pressure on the peg. If liquidity stays thin, the stablecoin could remain exposed to sharp moves across Curve and other trading venues.

Markets track debt closures, pool balances and price spreads closely.