In a recent turn of events, decentralized exchange (DEX) dYdX found itself utilizing a substantial $9 million from its insurance fund on November 17 to cover user liquidations. According to Antonio Juliano, the founder of dYdX, these losses were the result of what he described as a “targeted attack” against the exchange.
Reports from the dYdX team on X (formerly Twitter) indicated that the v3 insurance fund was deployed “to fill gaps in liquidation processes in the YFI market.” The Yearn.finance token experienced a significant 43% drop on November 17, following an impressive 170% surge in the preceding weeks. This sudden price crash raised concerns in the crypto community, prompting speculations about a potential exit scam.
The alleged attack specifically targeted long positions in YFI tokens on the exchange, leading to the liquidation of positions valued at nearly $38 million. Juliano believes that market manipulation played a significant role in both the trading losses affecting dYdX and the sharp decline in YFI: “This was pretty clearly a targeted attack against dYdX, including market manipulation of the entire $YFI market. We are investigating alongside several partners and will be transparent with what we discover.”
Despite the incident, Juliano reassured users that their funds were not affected, emphasizing that the v3 insurance fund still holds $13.5 million. He stated, “Even though no user funds were affected, we will also be conducting a thorough review of our risk parameters and making appropriate changes to both v3 and potentially the dYdX Chain software if necessary.”
The profitable trade that led to the $9 million insurance payout wiped out over $300 million in market capitalization from the YFI token, triggering concerns within the community about a possible insider job in the YFI market. Some users speculated that 50% of the YFI token supply was held in 10 wallets controlled by developers. However, Etherscan data suggests that some of these holders are crypto exchange wallets.
In response to the incident, dYdX announced new measures to mitigate trading-related risks. These measures include increased margin requirements on several “less liquid markets,” affecting tokens such as Eos (EOS), 0x Protocol (ZRX), Aave, Algorand (ALGO), Internet Computer (ICP), Monero (XRM), Tezos (XTZ), Zcash (ZEC), SushiSwap (SUSHI), THORChain (RUNE), Synthetix (SNX), and Yearn.finance (YFI).
Juliano referred to the incident as a “targeted attack” on the exchange, revealing that the individual behind the attack had previously attempted to manipulate the SUSHI market on dYdX a few weeks earlier. As a preventive measure, dYdX has now banned “highly profitable trading strategies.”
The YFI token’s value plummeted by 43% within hours on November 17, erasing over $300 million in market capitalization. Despite this setback, the token has still seen a remarkable 90% gain over the past 30 days, currently trading at $8,485 at the time of writing. While the Yearn.finance team has not officially disclosed details about the incident, a source familiar with the matter dismissed concerns about a potential scam, citing Etherscan data showing large centralized exchanges as YFI’s top holders.
