Abracadabra’s algorithmic stablecoin, Magic Internet Money (MIM), fell sharply from its dollar peg on June 12, sliding to as low as $0.87 across multiple blockchain networks. The depegging event, first flagged by blockchain security firm Blockaid, saw MIM trading between $0.91 and $0.92 on Arbitrum’s executable routes, with onchain data recording steeper discounts of $0.871 to $0.874 — an 11% decline in 24 hours.
The incident underscores the fragility of algorithmic stablecoins that rely on smart contract mechanisms and collateralized debt positions rather than fiat reserves. Thin and imbalanced liquidity in key trading pools was cited as the primary driver, a recurring theme in similar depegs that rocked Ethena’s USDe (which plunged to $0.65 in October 2025) and Solstice Finance’s USX (which crashed to $0.10 in December 2025). In each case, secondary market liquidity evaporated, overwhelming arbitrage incentives meant to restore the peg.
Abracadabra, a DeFi lending protocol that allows users to borrow MIM against interest-bearing collateral, had anticipated such risks. On June 11, one day before the depeg, the team submitted a governance proposal to add a MIM-2Pool gauge on Curve Finance, aiming to attract more liquidity through CRV emissions. If passed after the seven-day vote, the gauge could incentivize liquidity providers, but the current shortfall remains unaddressed in the interim.
For MIM holders and those with open collateralized debt positions, the depeg poses immediate unrealized losses and heightened liquidation risks, especially if collateral values decline further. The event serves as a stark reminder that algorithmic stablecoins, unlike fully backed alternatives such as USDT or USDC, are particularly vulnerable to confidence shocks and liquidity crises. Market participants are now closely monitoring whether the token regains its peg or stabilizes, with the Curve governance vote outcome likely to influence near-term sentiment.
