Abracadabra proposes 200% loan interest rate increase to mitigate CurveDAO risk

On Aug 2, 2023

Curve has faced multiple setbacks, such as the Conic, JPEG’d, and Curve hacks, which have impacted its total value locked (TVL) and caused ripple effects on the price and liquidity of CRV tokens. As a result, Abracadabra Money is considering raising interest rates to mitigate its exposure to CurveDAO’s native token, CRV.

Abracadabra Money proposes rate adjustment

In an August 1 announcement, Abracadabra Money proposed adjusting interest rates on collateral-based rates across CRV cauldrons.

The proposal suggests charging interest on the cauldron’s collateral before moving into the protocol’s treasury, similar to what the DAO did with Wrapped Bitcoin and Wrapped Ethereum cauldrons.

The adjustments will be 30% on a principal of $0M-$5M, 100% on a principal of $5 to $10 million, and 200% on a principal of $10 to $18 million. They will be combined on the collateral ratio of the smart contract to maximize the chances of full principal recovery and maintain protocol integrity.

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

These changes have since garnered mixed reviews on crypto Twitter, with a team member from Frax Finance, Drake Evans highlighting some of the concerns of the announcement by stating the impacts could be “very bad.” That said, the proposal is still eligible for voting for the next 46 hours at the time of writing.

Response to Curve hack

As explained in the proposal, the lending platform’s recent involvement with CRV risk due to decentralized finance (defi) exploits requires an adjustment.

The impact of hackers stealing between $20 and $40 million from Curve, one of the largest DEXs with $1.69 billion in total value locked (TVL), significantly affected the industry. This raised concerns about defi security, and crypto investors such as Justin Sun stepped in to assist Curve Finance.

Michael Egorov, the founder of Curve Finance, received loans totaling almost $100 million through various lending protocols. These loans are secured by 427.5 million CRV tokens, which make up 47% of the total circulating supply of CRV.

In addition, Egorov holds 51.65 million CRV tokens as collateral and has 14 million MIM debt positions within the Abracadabra ecosystem.

As the election draws near, the community is closely monitoring Abracadabra’s reaction to the recent hacking incident. People are curious about the potential consequences that the financial industry may face due to this event.

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