A warning shot that must have given investors a few cold sweats. The MIM stablecoin lost parity with the dollar for a few hours last night, following the flash crash of the FTX platform. Why are the two related?
The MIM stablecoin lost parity with the dollar overnight
A second Terra (UST) is what observers fear as the price of Magic Internet Money (MIM) fell below one dollar overnight. The stablecoin touched $0.80 for a while, before managing to climb back up:
The eventful night of the MIM stablecoin
This morning, stablecoin seems to have managed to find its peg. But the fears are not entirely over. The reason is that MIM is partially backed by FTT, the FTX token. And the latter suffered a catastrophic fall yesterday, down to around $5 this morning.
The link between MIM and FTX
According to data published by Abracadabra, FTT still accounted for $37.5 million in the basket of currencies that backs the MIM today. This corresponds to a significant share: 15% of the collateral. As a reminder, users can deposit collateral in order to create (mint) MIM tokens.
The fear is that the MIM is not sufficiently secured if the FTT price falls. In reality, this is far from being the case. The Abracadabra protocol ensures that its stablecoins are more than collateralized. Alameda Research, the investment arm of FTX, had borrowed MIM against FTT for $28 million. And this loan was secured by USD 126 million of FTT tokens. So we are still in the black, and the loan is far from being liquidated by Abracadabra.
But the situation could change. According to the research director of analyst The Block, the fall in FTT could make things worse:
“Given the illiquid and volatile nature of FTT, there may not be enough liquidity in the market to facilitate the effective liquidation of FTT-backed positions on Abracadabra, with the latter about to become under-collateralised. “
We will therefore be watching closely for further developments. As a reminder, the Terra affair, and the cascade of consequences that followed, was triggered by a depeg of the UST stablecoin. Abracadabra must therefore be particularly aware of what is at stake.
