Abracadabra Finance MIM Stablecoin Depegs Following $6.5m Exploit

Written by

Eddie Mitchell

Cryptocurrency Writer

Decentralized Finance (DeFi) protocol Abracadabra Finance has suffered a costly security hack, with analysts at cybersecurity firms estimating that the protocol lost over $6.4million on 30 January 2024.

DeFi breach

Earlier yesterday, the Twitter bot of Web3 security firm Cyvers raised the alarm on a malicious attack of significant proportion with millions lost and plenty of other funds still vulnerable.
 
Abracadabra Finance tweet
As per data on Etherscan, the attacker has already moved more 1,800 Ethereum (ETH), or $4.14m at the time of writing. 

Source: Etherscan
On-chain data shows that the exploiter was funded with 1 ETH through the sanctioned crypto mixing protocol Tornado Cash. The attacker targeted the smart contract that governs the platform’s Magic Internet Money (MIM) stablecoin, and by exploiting a precision loss bug, they were able to take out a highly inflated MIM loan compared to the collateral they deposited.

MIM stablecoin depegs

The exploit has crushed investor confidence and caused a run on the stablecoin. The MIM stablecoin experienced a huge flash crash, losing its $1 peg and crashing down to $0.76 before returning to $0.98 where it presently sits.

Magic Internet Money daily chart

In response, MIM developers have stated that they are working to resolve the issue, and will coordinate efforts to purchase and burn MIM coins to bring the token back to its $1 peg. Writing in a Tweet, they said: “To the best of its Ability, the DAO treasury will be buying back MIM from the market to then burn.”

Spell Token (SPELL) price

The platform’s reward token, SPELL, was also hit hard. Following a week of decent growth which has seen the token add over 7% to its value, it has since begun shedding these gains and is currently trending downward, so far losing 1.39% in value amid overall bullish market conditions.SPELL daily chart

Protocol integrity under fire

This latest exploit places Abracadabra Finance’s stability under scrutiny once again. Following the downfall of cryptocurrency exchange FTX in 2022, as well as the collapse of Terra’s Luna Classic (LUNC) and Terra USD Classic (UST), which the MIM stablecoin experienced volatility as it incurred $12m of bad debt, 

Following the collapse of FTX and Terra’s Luna Classic (LUNC) and Terra USD Classic (UST), analysts posited in 2022 that the protocol had incurred $12m of bad debt because “liquidations couldn’t happen fast enough to cover the protocol’s MIM liabilities.”