---
title: "How to Mitigate CRV Risk? Abracadabra Proposes 200% Interest Rate Hike"
url: https://diffcoin.com/how-to-mitigate-crv-risk-abracadabra-proposes-200-interest-rate-hike/
description: "Cross-chain lending platform Abracadabra Money proposes an unprecedented 200% rise in interest rates for managing Curve DAO risk."
published: 2023-08-02
updated: 2023-08-02
author: "Mila"
site: "Diffcoin"
---

# How to Mitigate CRV Risk? Abracadabra Proposes 200% Interest Rate Hike

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In a move to manage its exposure to risks associated with Curve DAO (CRV), Abracadabra Money, a cross-chain lending platform, has proposed hiking the interest rate on its outstanding loans by 200%.

> “We have seen CRV collateral outflowing from our markets into markets with lower LTVs and higher interest [..] As such, we are suggesting to increase the interest rate in order to reduce Abracadabra’s total CRV exposure to around $5M borrowed MIM.”

Abracadabra’s proposal intends to apply collateral-based interest to both CRV cauldrons, specific instruments allowing users to borrow Magic Internet Money (MIM) using other assets as collateral.

This proposal comes after a liquidity crisis resulting from recent Vyper programming language exploits on Curve Finance, leading to the listing of CRV as collateral on Abracadabra.

Curve founder Michael Egorov found himself in a financial dilemma with approximately $100 million in loans backed by 47% of Curve DAO’s (CRV) circulating supply, exacerbated by the recent hack.

This issue surfaces as the DeFi protocol is recuperating from a recent $47 million hack. Egorov’s loans are spread across different lending protocols, including 305 million CRV backing a 63.2 million Tether loan on Aave and 59 million CRV for a 15.8 million Frax debt on Frax Finance, Delphi Digital research stated.

Egorov has taken steps to lower the debt by paying a total of 4 million FRAX within a 24-hour period. Further, to incentivize liquidity, he deployed a Curve pool that attracted $2 million in liquidity and decreased the utilization rate from 100% to 89% within hours.

The announcement has drawn varied opinions from the DeFi community.

Some supporting it as a method to decrease exposure to CRV, while others, including Frax Finance executive Drake Evans, have expressed concerns about changing the terms of existing loans.

> 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
> 
> — Drake Evans (version 3) (@DrakeEvansV1) [August 2, 2023](https://twitter.com/DrakeEvansV1/status/1686614715554746368?ref_src=twsrc%5Etfw)

Other critics [stated](https://twitter.com/DefiMoon/status/1686623688957841409?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1686623688957841409%7Ctwgr%5E26dce6290ad9c7509330f1c48a35ad698e8d7550%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fcointelegraph.com%2Fnews%2Fabracadabra-hike-loan-interest-rate-by-200-curve-risk) that “there’s a good chance $MIM loses all $CRV gauges fairly quickly,” meaning this Spell proposal could actually turn around Abracadabra’s risk exposure to CRV.

Voting for the proposal began on August 1 and will continue until August 3. As of the time of publication, 99% of the votes cast were in favor of the proposal.

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