Key Highlights
- A proposal says Abracadabra’s MIM stablecoin has nearly $22 million in bad debt and effective backing below $0.04 per token.
- The plan would unwind eligible cauldrons, convert recovered collateral into ether, and distribute it to borrowers and MIM holders.
- Voting closes Sept. 30, but participation remains low at 3.4% of the 3 billion-vote quorum.
Abracadabra Proposal Calls for MIM Protocol Unwind
A governance proposal for Abracadabra says the decentralized finance protocol should be unwound after determining that nearly $22 million of MIM held outside protocol addresses represents bad debt. “In other words, the protocol sits on approximately $21 million of bad debt, and MIM’s effective backing is below $0.04 (>95% unbacked),” the proposal says.
The proposal rejects a previously considered plan to restore MIM’s dollar peg by raising interest rates across Abracadabra’s lending cauldrons. The strategy was intended to force liquidations, create buying pressure and push MIM back toward $1. Abracadabra used a similar approach in June, increasing rates across all cauldrons, halting Curve bribes and suspending direct incentives after MIM fell about 50% below its peg.
According to the new proposal, liquidations would transfer value to liquidators through MIM’s discount and liquidation fees. The result would be a “small, short term (minutes-long) price increase in MIM, that would benefit only the fastest sellers.” The proposal argues that the protocol cannot function without a credible route to restore the peg because borrowing MIM below $1 would offer no meaningful purpose. A planned neobank product linked to MIM would therefore add no value to the project under the current conditions.
LayerZero Relayer Retirement Adds Collateral Risk
LayerZero is scheduled to retire its V1 relayer on Dec. 15. The proposal estimates that approximately $1 million of collateral held in Abracadabra’s Stargate USDC and Stargate USDT cauldrons could be placed at risk as a result.
Under the proposed wind-down, eligible cauldron collateral would be emptied using the deployStrategy and setStrategy functions. The team says those functions should recover approximately 99.75% of the collateral, which would then be exchanged for ether.
Ether Distribution Plan for Borrowers and MIM Holders
A snapshot of MIM balances and cauldron positions would be taken no earlier than Oct. 15. A Merkl contract would distribute the recovered ether on a pro rata basis. Borrowers would receive the value of their collateral minus their MIM debt, calculated at $1 per MIM. MIM holders would divide the remaining value, which the proposal estimates at about $0.04 per MIM.
Funds that remain unclaimed for six months would be swept and redistributed first to MIM holders who claimed their allocation, up to $1 per MIM, and then to borrowers in proportion to their debt. Immutable positions would not be altered and would remain withdrawable onchain. The Abracadabra interface would remain available but would no longer be actively maintained.
The team consulted legal counsel before preparing the plan. Without a recovery path, the proposal says the protocol “should be unwound and liquidated, or become at risk of facing users enforcing a liquidation via legal actions,” while failing to rescue funds at risk “could constitute legal liability.”
Low Turnout as Abracadabra Vote Nears Deadline
Voting opened Sept. 29 at 05:24 UTC and is scheduled to close Sept. 30 at 17:24 UTC. Two addresses had voted at the time of the report. One supported the proposal with approximately 100 million staked SPELL, while the other opposed it with about 523,000 SPELL.
Turnout stood at 3.4% of the Snapshot space’s 3 billion-vote quorum. Each of the 11 proposals posted to the space before the current vote, dating back to December 2024, received more than 3 billion votes.
The proposal was submitted by an address not listed as an administrator or member of the Snapshot space. Abracadabra’s X account has not posted since July 6. The abracadabra.money landing page displays an “Abracadabra V2” banner and describes MIM as “a stablecoin with its value pegged to the USD, aiming to maintain a consistent 1:1 ratio.”
MIM was up 33% over 24 hours but remained approximately 97% below its $1 peg, according to CoinGecko data. The token was down 49% over seven days, while SPELL was up 20% over 30 days.
Abracadabra’s Exploits and Change in Control
Abracadabra suffered a $6.5 million loss from a rounding bug in its cauldron logic in January 2024. In March 2025, an attack on GMX-linked vaults on Arbitrum caused a further $13 million loss. A third exploit affected deprecated Cauldron V4 contracts on Ethereum in October 2025.
After the third exploit, the team said the attacker had minted 1.79 million MIM and that it “bought back from the Market the entirety of affected MIM, completely reversing the effect of the attack.”
Control of Abracadabra changed hands in June. A Snapshot vote that closed June 4 transferred operational stewardship, treasury management and development responsibilities to an entity called Anubis. The vote listed Greg Dewitt in operations and Paul Parker and Glenn Kennedy as directors.
The June proposal named dao5, founded by Tekin Salimi, as a strategic partner through Alapin Holdings, alongside Nemesis Trading. It also said Jack Niewold would serve as project lead, with Rodman Law Group acting as counsel to Anubis. Two addresses voted on that proposal, both in favor, with a combined 5.5 billion votes.
That proposal sought to “revitalize Abracadabra as a leading DeFi protocol” and identified expanding SPELL’s utility and demand as priorities. The current proposal says the condition discovered by the new team “was far worse than initially expected, as not all the collateral present represents valid MIM backing.” DefiLlama estimates Abracadabra’s deposits at approximately $5 million.
Why This Matters
The proposal represents a shift from attempting to restore MIM’s peg to formally distributing recoverable collateral and winding down the protocol’s active operations. Its proposed treatment of borrowers, MIM holders, immutable positions and unclaimed funds depends on the Snapshot vote and the subsequent implementation of the outlined smart-contract processes.
The situation also highlights the effect of protocol exploits, unsupported collateral and infrastructure changes on DeFi lending systems. LayerZero’s planned V1 relayer retirement creates a separate time-sensitive risk for Stargate-related cauldrons, while low voting participation leaves the outcome dependent on a small number of addresses.
Frequently Asked Questions
What is the Abracadabra proposal about?
The proposal would unwind eligible Abracadabra cauldrons, recover and convert collateral into ether, and distribute the proceeds among borrowers and MIM holders according to the stated allocation rules.
Why does the proposal reject a new MIM repeg attempt?
It says liquidations would produce only a brief price increase while transferring value to liquidators. The proposal also argues that borrowing MIM below its dollar peg no longer serves a useful purpose.
When does the Abracadabra vote close?
Voting opened Sept. 29 at 05:24 UTC and closes Sept. 30 at 17:24 UTC. At the time described, participation was 3.4% of the 3 billion-vote quorum.