Abracadabra Protocol To Counter CRV Risk With 200% Interest Rate Hike
August 02 2023 - 2:00PM
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DeFi lending protocol, Abracadabra Money, is currently debating a
proposal to boost the interest rate in its CRV lending markets as
it looks to mitigate its exposure to the DeFi token. In the
last few days, CRV has seen its value decline significantly
due to the recent Curve Finance exploit on Sunday, which resulted
in a total loss of over $60 million. According to data from
CoinMarketCap, CRV is currently trading at $0.56, with an 8.28%
loss in the last 24 hours. Abracadabra Exposed To Significant CRV
Risk Levels In a governance proposal submitted on Aug 1, DAO
contributor and community manager Romy highlighted that Abracadabra
was currently exposed to a substantial level of CRV risk. To
address this situation, the proposal contains a strategy that
introduces collateral-based interest to both CRV cauldrons –
lending markets – on Abracadabra. Related Reading: Ethereum DeFi
Coins Plunge As Curve Concerns Threaten Major Market Crash Romy
stated that Curve Finance, the underlying platform of CRV, has seen
its TVL negatively affected over the last month by several events,
including the Conic Finance Hack, the JPEG’d exploit, and the
attack on Curve itself. In particular, Romy noted that the
theft of $25 million from Curve’s CRV/ETH pool had impacted the
on-chain liquidity for CRV, altering the conditions that led to the
adoption of the token as a collateral asset on Abracadabra.
In addition, the proposal also noted that Abracadabra had recorded
CRV outflows toward markets with lower Loan-to-Value (LTV) ratios
and higher interest rates. Together, all these factors have
affected CRV’s price and liquidity, prompting the need for
Abracadabra to reduce its exposure to the token. CRV trading
at $0.558 on the daily chart: Source: CRVUSD chart on
Tradingview.com Abracadabra’s Proposed Strategy To Introduce 200%
Interest Hike As earlier stated, Romy’s governance proposal aims to
cover Abracadabra CRV’s risk by applying collateral-based interest
to the two CRV lending markets on the platform. It was stated that
this strategy had been previously implemented with the WBTC and
WETH cauldrons. This introduction of collateral-based
interests would allow Abracadabra to levy interest directly on each
CRV cauldron’s collateral which is directly transferred to the
protocol’s treasury and converted to Abracardra’s native stablecoin
MIM, either via on-chain or off-chain transactions. Related
Reading: Is It A Good Idea To Buy Curve Now? Here’s What This
Founder Thinks Based on projections, Romy stated that this strategy
would allow Abracadabra to boost its treasury reserve and cut
potential losses due to CRV exposure to about $5M borrowed
MIM. Under the new proposed interest structure, the interest
rates will be determined based on two factors: the combined
outstanding principal of the CRV cauldrons and the collateral ratio
of each cauldron. The base interest rate will vary depending
on the total borrowed amount, classified into three ranges:
$0M-$5M, $5M-$10M, and $10M-$18M. For instance, as the current
outstanding principal stands at $18M, the base interest rate would
be set at 200%. Using this rate, it is estimated that the
loan would be completely covered in six months’ time. Furthermore,
the collateral ratio would influence the interest multiplier, with
ratios ranging from <= 40% to <= 70% correlating to
multipliers of 1x, 5x, 10x, and 25x, respectively.
According to the proposal, this interest rate structure ensures the
maximum chances of “full principal recovery” for Abracadabra. The
voting session for this proposal commenced on Aug. 1. and will run
for only 46 hours due to the supposed urgency of the matter. As of
the time of writing, 51 members of the Abracadabra DAO have placed
their votes, with 99.74% supporting the proposal. Source:
Snapshot Featured image from Ceqoa, chart from Tradingview
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