Abracadabra proposes hiking loan interest rate by 200% to manage Curve risk
Abracadabra Money, a cross-chain lending platform, has proposed increasing the interest rate on its outstanding loans to manage risks associated with its exposure to Curve DAO (CRV). The proposal drew mixed reactions from the community, with several questioning the modification of loan terms, while others called it a great plan to cut down exposure to CRV.
Abracadabra protocol allows users to earn money by using interest-bearing assets such as CRV, Convex Finance (CVX) and Yearn.finance (YFI) as collateral to mint Magic Internet Money (MIM) — a United States dollar-pegged stablecoin. Spell Token (SPELL) is the native governance and staking token of the Abracadabra platform.
Curve Finance founder Michael Egorov has nearly $100 million in loans across various lending protocols backed by 427.5 million CRV, which is 47% of the total circulating supply of CRV tokens. The Curve founder has 51.65 million CRV collateral and 14 million MIM debt positions on Abracadabra.
Abracadabra is exposed to significant amounts of CRV risk due to recent exploits on the decentralized finance (DeFi) protocol, leading to a liquidity crisis. The incident changed the liquidity conditions that led to the listing of CRV as collateral on Abracadabra.
In order to address the issue, a new proposal has been made to apply collateral-based interest to both CRV cauldrons. Cauldrons allow users to borrow MIM using another asset as collateral, with each cauldron being collateral specific.
The improvement proposal called for an increase in the interest rate to reduce Abracadabra’s total CRV exposure to around $5 million in borrowed MIM.
Related: Ethical hacker retrieves $5.4M for Curve Finance amid exploit
The proposal aims to apply collateral-based interest similar to what the decentralized autonomous organization (DAO) did with the Wrapped Bitcoin (WBTC) and Wrapped Ether (WETH) cauldrons. All interest will be charged directly on the cauldron’s collateral and will immediately move into the protocol’s treasury to increase the reserve factor of the DAO.
The DeFi protocol proposal estimated that for an $18 million principal loan amount, the base rate would be 200%. At this interest rate, the loan would be fully covered within six months. The proposal noted that the base rate would decrease as the principal is repaid.
Voting for the proposal opened on Aug. 1 and will last until Aug. 3, with 99% of the votes cast in favor of the proposal by publication.
The proposal also drew various reactions from the crypto community, including Frax Finance executive Drake Evans who called it a governance rug.
I’m sorry but jacking interest rates to 200% via governance is a rug. Changing the fundamental terms of a loan (10x interest rate) in a single transaction is very bad and we should call it out.
Very sympathetic to protecting protocol integrity but rugging is not the way https://t.co/sqWy7R0YPq
— Drake Evans (version 3) (@DrakeEvansV1) August 2, 2023
Others supported the proposal, claiming it could help the lending protocol eliminate CRV exposure.
If @MIM_Spell really tries this, I’d say there’s a good chance $MIM loses all $CRV gauges fairly quickly.
41m MIM (61% of total mcap) is on Curve!$SPELL #DeFi https://t.co/vpm3bH4xct
— DefiMoon (@DefiMoon) August 2, 2023
With the price of CRV experiencing a stress test, the risk of a token dump has increased. In the meantime, many lending protocols are looking for ways to clear their CRV exposure.
Collect this article as an NFT to preserve this moment in history and show your support for independent journalism in the crypto space.
Magazine: Should crypto projects ever negotiate with hackers? Probably
The election of a pro-crypto President in the United States and growing macroeconomic turmoil will continue to drive investors to Bitcoin.
Politics
Sir Keir Starmer vows to defend budget decisions ‘all day long’ as farmers slam ‘disrespectful’ PM
Sir Keir Starmer has said he will defend the decisions made in the budget “all day long” amid anger from farmers over inheritance tax changes.
Chancellor Rachel Reeves announced last month in her key speech that from April 2026, farms worth more than £1m will face an inheritance tax rate of 20%, rather than the standard 40% applied to other land and property.
The announcement has sparked anger among farmers who argue this will mean higher food prices, lower food production and having to sell off land to pay for the tax.
Sir Keir defended the budget as he gave his first speech as prime minister at the Welsh Labour conference in Llandudno, North Wales, where farmers have been holding a tractor protest outside.
Sir Keir admitted: “We’ve taken some extremely tough decisions on tax.”
He said: “I will defend facing up to the harsh light of fiscal reality. I will defend the tough decisions that were necessary to stabilise our economy.
“And I will defend protecting the payslips of working people, fixing the foundations of our economy, and investing in the future of Britain and the future of Wales. Finally, turning the page on austerity once and for all.”
He also said the budget allocation for Wales was a “record figure” – some £21bn for next year – an extra £1.7bn through the Barnett Formula, as he hailed a “path of change” with Labour governments in Wales and Westminster.
And he confirmed a £160m investment zone in Wrexham and Flintshire will be going live in 2025.
‘PM should have addressed the protesters’
Among the hundreds of farmers demonstrating was Gareth Wyn Jones, who told Sky News it was “disrespectful” that the prime minister did not mention farmers in his speech.
He said “so many people have come here to air their frustrations. He (Starmer) had an opportunity to address the crowd. Even if he was booed he should have been man enough to come out and talk to the people”.
He said farmers planned to deliver Sir Keir a letter which begins with “‘don’t bite the hand that feeds you”.
Farmers’ tractor protest outside the Welsh Labour conference in Llandudno, North Wales
Mr Wyn Jones told Sky News the government was “destroying” an industry that was already struggling.
“They’re destroying an industry that’s already on its knees and struggling, absolutely struggling, mentally, emotionally and physically. We need government support not more hindrance so we can produce food to feed the nation.”
He said inheritance tax changes will result in farmers increasing the price of food: “The poorer people in society aren’t going to be able to afford good, healthy, nutritious British food, so we have to push this to government for them to understand that enough is enough, the farmers can’t take any more of what they’re throwing at us.”
Mr Wyn Jones disputed the government’s estimation that only 500 farming estates in the UK will be affected by the inheritance tax changes.
“Look, a lot of farmers in this country are in their 70s and 80s, they haven’t handed their farms down because that’s the way it’s always been, they’ve always known there was never going to be inheritance tax.”
On Friday, Sir Keir addressed farmers’ concerns, saying: “I know some farmers are anxious about the inheritance tax rules that we brought in two weeks ago.
“What I would say about that is, once you add the £1m for the farmland to the £1m that is exempt for your spouse, for most couples with a farm wanting to hand on to their children, it’s £3m before anybody pays a penny in inheritance tax.”
Read more:
Ex-Labour adviser suggests doing to farms ‘what Thatcher did to coal mines’
Farmers ‘could block ports and disrupt food supply’
Welsh farmer Gareth Wyn Jones
Ministers said the move will not affect small farms and is aimed at targeting wealthy landowners who buy up farmland to avoid paying inheritance tax.
But analysis this week said a typical family farm would have to put 159% of annual profits into paying the new inheritance tax every year for a decade and could have to sell 20% of their land.
Keep up with all the latest news from the UK and around the world by following Sky News
The Country and Land Business Association (CLA), which represents owners of rural land, property and businesses in England and Wales, found a typical 200-acre farm owned by one person with an expected profit of £27,300 would face a £435,000 inheritance tax bill.
The plan says families can spread the inheritance tax payments over 10 years, but the CLA found this would require an average farm to allocate 159% of its profits each year for a decade.
To pay that, successors could be forced to sell 20% of their land, the analysis found.
Trump’s administration could push DeFi from niche to mainstream, with crypto advocates eyeing potential pro-crypto policy shifts.
-
Sports2 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports7 months agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports1 year agoGame 1 of WS least-watched in recorded history
-
Environment1 year agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Sports3 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business2 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway