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MIM stablecoin moves away from its peg with the US dollar

A new stablecoin in turmoil – Last month, stablecoins grabbed all the headlines following the fall of Terra Luna’s UST. However, this one would not be the only one to be victim of a loss of his stallion. Thus, the MIM stablecoin of the Abracadabra protocol has also just lost its peg.

MIM: a complex algorithmic stablecoin

M.I.M. Where Magic Internet Money is an algorithmic stablecoin issued by the Abracadabra.money protocol.

In practice, MIM tokens are issued by the protocol by collateralizing other so-called tokens interest-bearing. These interest-bearing tokens are tokens representing deposits on various DeFi protocols.

For example, the yvUSDT represents a USDT deposit on the Yearn Finance protocol. Thus, the tokenized version of this deposit, the yvUSDT, can be collateralized to issue MIM tokens.

An operation that adds an additional level of complexity compared to algorithmic stablecoins like the DAI. Indeed, the FAI is issued via the collateralization of more traditional assets such as ETH or USDC.

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MIM and Abracadabra.money on the verge of collapse

As we have seen with the fall of the UST, algorithmic stablecoins can prove to be extremely fragile. This phenomenon is exacerbated in the context of a bear market.

Moreover, this phenomenon can be exacerbated by a mismanagement by the founders of these stablecoins. According to revelations published by Autism Capital on Twitter, the Abracadabra.money’s MIM may well be on its way to joining UST in the abyss.

So on June 18, Autism Capital posted a thread announcing that “MIM (Magic Internet Money) could be insolvent”. The details provided are chilling and could cost stablecoin holders dearly.

Thread on MIM published by Autism Capital.

So, last month, during the fall of the UST stablecoin, $12 million in bad debt was created on the Abracadabra.money protocolbecause the liquidation process was not initiated in time.

In practice, this means that the value of the collateral used to secure these 12 million dollars has fallen below the value issued in MIM tokens. According to Autism Capital, this news “has been swept under the rug” by the founders of Abracadabra.money.

To conceal this disastrous situation, the founders offline the dashboard allowing to follow the health status of the loans on the protocol. The latter passed this maneuver off as an “update” of said dashboard.

“With the dashboard down, there is no easy way to check how much bad debt is in the protocol. »

MIM stablecoin moves away from its peg

Rather than attempt to resolve this situation by strengthening the protocol treasuries, Dani Sesta, the founder of MIM drove the point home. Thus, he has created more bad debt leaving a position of $125,000 in SPELL to be liquidated, while reselling the generated MIMs. Therefore, $125,000 of uncollateralized debt was added by the founder himself.

$125,000 of additional bad debt issued by the founder of MIM.
$125,000 of additional bad debt issued by the founder of MIM.

A situation that does not seem to worry him. Indeed, this one declared on the Discord of the protocol: “the idea that I’m not paying this bad debt is funny”.

In addition, rather than using the protocol’s treasury to buy back MIMs and destroy them to restore the peg, the teams behind the project preferred to buy CRV without any real explanation.

Obviously, the stablecoin MIM reacted very badly to this situation by moving away from its peg. So, this one has recorded a fall to $0.91or 9% below its dollar benchmark.

The MIM token deviates from its peg.
The MIM token deviates from its peg.

This fall could well continue if nothing is done to cover the bad debt of the protocol.

MIM is not the only algorithmic stablecoin in turmoil. Indeed, the USDD of the Tron network is also facing a depeg situation. Its founder Justin Sun tries somehow to manage by selling TRX massively to maintain the peg.

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