UST Contagion Continues as ‘Magic Internet Money’ Stablecoin Depegs

Last month’s Terra’s UST collapse has caused a domino effect on several stablecoins in the market. This time, Abracadabra’s Magic Internet Money (MIM), another US dollar-pegged stablecoin, started de-pegging on June 18, falling to US$0.92 per token in nearly three hours.

The de-pegging started on June 17, around 7:00 am UTC. According to Twitter handle Autism Capital, an insider revealed that Abracadabra had accrued US$412 million in bad debt as a result of Terra’s UST meltdown “because liquidations couldn’t happen fast enough to cover the protocol’s MIM liabilities”:

Ripple Effect in MIM Curve Pool

Autism Capital shed some light on the founder of MIM, Daniele Sestagalli, who allegedly created more “bad debt” by letting his SPELL position get liquidated. SPELL is an Ethereum-based token that governs Abracadabra.

Accordingly, Wonderland, a crypto venture firm that shared team members with Abracadabra, withdrew US$50 million in USDC from the MIM Curve pool on June 17, causing considerable pain to the pool’s balance:

The thread further explains that Abracadabra decided to buy CRV instead of using funds from the MIM treasury to pay the debt. But Abracadabra took down its analytics dashboard to “upgrade it” and the timing of its dashboard shutting down was a mere coincidence.

Sestagalli refuted the allegations, stating that the MIM treasury has more funds to pay off debt. For proof he shared the treasury’s address, which currently holds over US$13 million.

Terra Domino Effect Persists

The collapse of Terra’s UST stablecoin not only affected investors worldwide but has also caused a domino effect on stablecoin projects. Soon after Terra’s meltdown, TRON’s algorithmic stablecoin USDD started losing its peg with the US dollar on June 7. To prevent a Terra-type fiasco, TRON announced that USDD would be overcollateralised by a ratio of at least 130 percent.

Before TRON and Terra, the Waves Protocol-backed Neutrino Dollar (USDN) also lost its peg to the US dollar, dropping more than 15 percent amid speculation of market manipulation.