Stablecoin Crash?!

Cointelegraph:

“Decentralized finance platform Abracadabra said Wednesday that it launched emergency measures after its crypto-collateralized stablecoin, Magic Internet Money (MIM), fell 50% below its $1 peg.”

I have spent a lot of time vacillating between being Blockchain-Curious and Crypto-Skeptical. As an exercise, let’s consider the pros- and cons- of Stablecoins, and whether there is reason for speculators to be concerned as to the rest of the sector.

Let’s begin by pointing out that if coins were US equities, I would be an aggressive buyer down 50%. Historically, quality companies from stable regions, on sale at half off, have presented a fabulous entry point. But coins — stable or otherwise — are not equities. They trade like a mash-up of currency, commodities, and tech startups. I have no clue whether down 50% is about to bounce hard or continue to free-fall. I don’t even have a framework for contextualizing this.

Rather than speculate, let’s use this example to examine the Stable Coin value proposition (my caveats here 1).

1) This looks like a bank run: I don’t know how else to describe this other than to point out that the massive withdrawals of the underlying securities’ anchor raise questions. On-demand redemption at par should not be a problem; this looks like the kind of run that traditional (fractional lending) banks suffer from — the kind the crypto community has long criticized. The fact that Magic Internet Money was cut in half suggests genuine maturity or liquidity mismatch, but with no deposit insurance and no lender of last resort to come in and save the day.

How can a “fully” reserved coin get depegged? We have seen this movie before:

-Terra/UST vaporized $40B in May 2022 via a reflexive death spiral. Asd I understand it, that peg depended upon an arbitrage with a sister token; and THAT depended on yet another peg.

-USDC broke its peg due to an external event: It fell to $0.88 in March 2023 as $3.3B of its reserves at Silicon Valley Bank were frozen. But for the FDIC backstop, USDC likely would have gone poof also.

Compare that with money markets that broke the buck in 2008-09; they fell to 98 cents, before being rescued. That is a huge safety difference for depositors.

The takeaway? These designs are structurally unsound, and problems tend to show up when either A) there is an issue elsewhere in the financial system, or 2) other coins find themselves in a substantial downtrend. Both of these smell like the stablecoin’s architecture has inherent structural issues.

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I am less of a believer in the claim that stablecoins are needed for legitimate cross-border payments and similar remittances. The traditional banking system is slower, but that is a feature, not a bug, which helps thwart fraud and criminality (KYC, etc.). For most consumers, apps like Remittly and World Remit are fast, cheap, and safe.

State Street and other money center banks have embraced a variety of use cases, such as B2B payments and merchant settlements. Just please stop using the phrase “DeFi” now that giant US money centers have embraced the entire sector.

I understand the value proposition for payments or regional dollar access; but this is hardly the grandiose “future of all money” claims of just a few years ago. If you are in Argentina, Turkey, Nigeria, Lebanon, etc., dollar-stablecoins give you purchasing power, especially when their local currencies are in high- or hyperinflation mode. That utility is real; I believe it must be measured, however, against the speculative negatives and potential criminality. But that’s before we get to the well-known criticisms made by folks like Zeke Faux.2

It will be interesting to see how this plays out…

Previously:
Whatever Happened to NFTs? (December 9, 2025)

Lessons of “Number Go Up” (December 13, 2023)

Cancelling Michael Lewis (October 5, 2023)

Sturgeon’s Corollary (December 4, 2025)

Source:
Abracadabra takes emergency action as MIM stablecoin depeg worsens
by Martin Young
Cointelegraph, June 24, 2026

See also:
Stablecoins Are Private Money. That’s Why They’re a Risk to the Economy. (Wall Street Journal)

GENIUS Act explained: What it means for crypto and digital assets (State Street)

What Are Stablecoins Used for Today? (Federal Reserve Bank of Kansas City)

The Hidden Plumbing of Stablecoins: (MIT Media Lab)

How a Cryptocurrency Helps Criminals Launder Money and Evade Sanctions (New York Times)

__________

1. I do not pretend to be a crypto expert, but I am a student of market history. In many ways, Crypto resembles the slow adoption of an innovative, complex technology; in other ways, it resembles a classic speculative bubble.

Interestingly, these are not mutually exclusive…

2. “They’ve become the settlement layer for illicit finance.” Permissionless, instant, dollar-denominated, and globally liquid is a great payment product and also a great sanctions-evasion and scam-settlement product. The bulk of on-chain criminal value transfer now moves in stablecoins rather than bitcoin, and African and other regulators are specifically focused on operationalizing FATF-aligned AML/CFT requirements like Travel Rule implementation for cross-border stablecoin corridors. The dominant fiat-backed issuers can and do freeze addresses — which defeats the censorship-resistance pitch while still leaving enormous gray-market flow. (Via Chainalysis)

AI DISCLOSURE: I wrote this myself, used Claude for research and Grammarly for spelling grammar corrections

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