The Magic Internet Money (MIM), a stablecoin issued by Abracadabra Money, has slightly lost its parity with the US dollar. The MIM stablecoin fell to as low as $0.95 before rebounding to $0.98 as of 5:30 a.m. ET, according to data from CoinGecko.
While it’s not immediately clear why the stablecoin lost its dollar parity, fears that a portion of its value is backed by FTT, the native token of the pressured FTX exchange may be the likely catalyst. This token has become the subject of a controversy surrounding the finances of FTX’s sister firm Alameda Research.
Abracadabra is a decentralized finance project that lets anyone deposit collateral to mint a dollar pegged MIM stablecoin in the form of an over-collateralized loan. It has an estimated market capitalization of $153 million, per CoinGecko data.
Abracadabra data shows that MIM is backed by a basket of different cryptocurrencies, with FTT collateral making up for $28 million (18%) of the total MIM supply borrowed from the protocol. This $28 million exists as MIM stablecoin borrowed by Alameda using FTT as collateral, on-chain data on various Alameda wallets shows.
To ensure all stablecoins are overcollateralized, Abracadabra employs an on-chain liquidation mechanism. So any MIM loan on Abracadabra is liquidated should the price of the collateral fall below a certain level.
Against its MIM loan, Alameda holds $126 million (in FTT tokens) as collateral on Abracadabra, which indicates the collateral far exceeds the borrowed stablecoin value. Hence it’s far from being liquidated given its over-collateralized position, a positive factor for MIM’s underlying value. Still, MIM stablecoin holders have reacted negatively to the fears surrounding financials of Alameda, FTX exchange’s sister firm and concerns over over $500 million worth of FTT is being sold by Binance.
Users may also be worried about FTT token’s liquidity, which may make it harder to perform liquidation and maintain MIM’s underlying value. This, analysts from The Block Research say, is another reason why MIM holders are panicked.
“Given the illiquid and volatile nature of FTT, there might not be sufficient liquidity in the market to facilitate the smooth liquidation of FTT-backed positions on Abracadabra that are about to become under-collateralized,” said Eden Au, Research Director at The Block.
Amid the stablecoin volatility, MIM’s trading volume spiked to nearly $15 million on Curve exchange, 89% more than yesterday, according to Dune Analytics. Furthermore, the MIM liquidity on Curve is rapidly drying up with the liquidity pool becoming unbalanced. Here, 92% ($93 million) of the total $103 million size consists of MIM alone, data from Curve shows.
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