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How to Mitigate CRV Risk? Abracadabra Proposes 200% Interest Rate Hike

Abracadabra's ongoing attempts to mitigate the risks to its of CRV cauldrons, increasing interest rates to reduce the total exposure to around $5 million in borrowed MIM.

How to Mitigate CRV Risk? Abracadabra Proposes 200% Interest Rate Hike

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In a move to manage its exposure to risks associated with Curve DAO (CRV), Abracadabra Money, a cross-chain lending platform, has proposed hiking the interest rate on its outstanding loans by 200%.

“We have seen CRV collateral outflowing from our markets into markets with lower LTVs and higher interest [..] As such, we are suggesting to increase the interest rate in order to reduce Abracadabra’s total CRV exposure to around $5M borrowed MIM.”

Abracadabra’s proposal intends to apply collateral-based interest to both CRV cauldrons, specific instruments allowing users to borrow Magic Internet Money (MIM) using other assets as collateral.

This proposal comes after a liquidity crisis resulting from recent Vyper programming language exploits on Curve Finance, leading to the listing of CRV as collateral on Abracadabra.

Curve founder Michael Egorov found himself in a financial dilemma with approximately $100 million in loans backed by 47% of Curve DAO’s (CRV) circulating supply, exacerbated by the recent hack.

This issue surfaces as the DeFi protocol is recuperating from a recent $47 million hack. Egorov’s loans are spread across different lending protocols, including 305 million CRV backing a 63.2 million Tether loan on Aave and 59 million CRV for a 15.8 million Frax debt on Frax Finance, Delphi Digital research stated.

Egorov has taken steps to lower the debt by paying a total of 4 million FRAX within a 24-hour period. Further, to incentivize liquidity, he deployed a Curve pool that attracted $2 million in liquidity and decreased the utilization rate from 100% to 89% within hours.

The announcement has drawn varied opinions from the DeFi community.

Some supporting it as a method to decrease exposure to CRV, while others, including Frax Finance executive Drake Evans, have expressed concerns about changing the terms of existing loans.

Other critics stated that “there’s a good chance $MIM loses all $CRV gauges fairly quickly,” meaning this Spell proposal could actually turn around Abracadabra’s risk exposure to CRV. 

Voting for the proposal began on August 1 and will continue until August 3. As of the time of publication, 99% of the votes cast were in favor of the proposal.

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