- dYdX decentralized exchange was attacked, forcing it to use its insurance fund to cover $9M in user liquidations. The attack targeted long positions in YFI tokens, causing YFI to crash 43%.
- dYdX believes the losses were caused by market manipulation. Its insurance fund still holds $135M and user funds were protected. dYdX plans to investigate the incident and improve risk management.
- YFI’s sudden 43% crash in 5 hours erased November gains. This raised concerns about a potential exit scam, however the causes of the crash remain unclear.
Decentralized exchange dYdX was recently forced to use its insurance fund to cover user liquidations. The losses resulted from what appears to be a targeted attack against the exchange and the YearnFinance token YFI. This article will examine the details of the attack and the dramatic crash in the price of YFI.
The Attack Wipes Out Long Positions on dYdX
On November 17th, dYdX’s v3 insurance fund was used to fill gaps on liquidations processes in the YFI market. YFI dropped 43% on the same day after surging over 170% in previous weeks. The attack targeted long positions in YFI tokens on dYdX, liquidating positions worth nearly $38 million. dYdX founder Antonio Juliano believes the losses on the exchange and the decline in YFI were caused by market manipulation.
The Insurance Fund Covers $9 Million in Losses
According to Juliano, the attack forced dYdX to cover $9 million in user liquidations from its insurance fund. He claims this was “pretty clearly a targeted attack against dYdX, including market manipulation of the entire YFI market.” The v3 insurance fund still holds $135 million and user funds were not affected. Juliano says dYdX will investigate the incident and make any necessary changes to its risk management.
The Sudden Crash of YFI Raises Concerns
YFI crashed over 43% in just five hours on November 18th, after rallying almost 170% earlier in the month. Over $300 million in market capitalization was wiped out from the gains made in November. The sell-off triggered fears about a possible exit scam in the crypto community. However, some argue the price movement does not indicate an exit scam. The causes of the sudden decline in YFI remain unclear.
The alleged attack on dYdX and the dramatic crash in YFI have raised many questions within the crypto space. While the details are still emerging, it appears malicious actors targeted long positions on dYdX and manipulated the price of YFI. dYdX was forced to use its insurance fund, but ensured user funds were not affected. The companies plan to investigate the incident and improve risk management going forward. The sudden decline of YFI also requires further examination to understand what forces were behind the price swings. As the facts become clearer, the impacts of this event may lead to positive changes in security and stability across decentralized finance.