Abracadabra proposes hiking loan interest rate by 200% to manage Curve risk

Abracadabra Money, a cross-blockchain lending platform, has proposed increasing the interest rate on its outstanding loans to manage risks associated with its Curve (CRV) exposure. The proposal drew mixed reactions from the community, and several questioned the tactic of modifying loan terms, while others called it a great plan to cut down exposure to CRV.
Abracadabra protocol allows users to earn money by using interest-bearing assets such as CRV, CVX and YFI as collateral to mint Magic Internet Money (MIM), a USD-pegged stablecoin. Spell is the native governance and staking token of the platform.
Abracadabra is exposed to significant amounts of CRV risk due to recent exploits on the DeFi protocol, leading to a liquidity crisis. The incident has changed the liquidity conditions that led to the listing of CRV as collateral on Abracadabra.
In order to address this issue a new proposal has been made to apply collateral-based interest to both CRV cauldrons. CRV cauldrons are liquidity pools on the lending protocol. The improvement proposal called for an increase in the interest rate in order to reduce Abracadabra’s total CRV exposure to around $5 million borrowed MIM.
Related: Ethical hacker retrieves $5.4M for Curve Finance amid exploit
The proposal aims to apply collateral-based interest similar to what the decentralized autonomous organization (DAO) did with the WBTC and WETH cauldrons. All interest will be charged directly on the cauldron’s collateral and will immediately move into the protocol’s treasury to increase the reserve factor of the DAO. 
The DeFi protocol proposal estimated that for an $18 million principal loan amount, the base rate would be 200%. At this interest rate, the loan would be fully covered within six months. The proposal noted that as the principal is repaid, the base rate would decrease.

The voting for the proposal opened on Aug. 1 and will last until Aug. 3, and at press time a mammoth 99% of the votes were cast in favor of the proposal.
The proposal also drew various reactions from the crypto community including Frax Finance executive Drake Evans who called it a governance rug.

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

Others supported the proposal claiming it could very well help the lending protocol get rid of CRV exposure.

If @MIM_Spell really tries this, I’d say there’s a good chance $MIM loses all $CRV gauges fairly quickly.

41m MIM (61% of total mcap) is on Curve!$SPELL #DeFi https://t.co/vpm3bH4xct

— DefiMoon (@DefiMoon) August 2, 2023

Curve founder Michael Egorov has nearly $100 million in loans across various lending protocols backed by 427.5 million CRV which is 47% of the circulation supply of the Curve token. Curve founder has 51.65 million CRV collateral and 14 million MIM debt positions on Abracadabra.
With the price of Curve experiencing a stress test, the risk of a token dump has increased. In the meantime, many of the lending protocols are looking for ways to clear from their CRV exposure.
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