TL;DR
- DYdX founder Antonio Juliano alleges a “targeted attack” against the decentralized exchange and Yearn.Finance token market.
- The DEX platform had to take out millions on its v3 insurance fund to cover user liquidations on its platform.
DYdX Uses V3 Insurance Fund to Cover User Liquidations
On November 17, 2023, the Decentralized exchange (DEX) dYdX was forced to pay $9 million in user liquidations from its insurance kitty.
According to Antonio Juliano, the founder of dYdX, the losses resulted from a targeted attack against the exchange.
Based on the reports from the dYdX team, the v3 insurance fund was used to fill gaps on liquidations processed in the YFI market.
The Yearn.Finance (YFI) token declined by 43% on November 17, 2023, after an uptrend of over 170% in the previous week.
The abrupt decline in price that wiped out $50 million in YFI Open Interest is raising concerns in the crypto space about a potential existing scam.
According to the DEX’s website, the v3 insurance fund is the first to-go-to plan to maintain the system’s functionality when an account hits a negative balance.
The funds are, however, not decentralized—meaning that the dYdX team is responsible for deposits to and withdrawals from it.
Trading Losses Affecting DYdX are Due to Market Manipulation
The alleged attack went after long positions in YFI tokens on the exchange, clearing out holdings worth $38 million.
Antonio Juliano thinks that the current trading losses that dYdX is experiencing, as well as the decline in Yearn.Finance tokens are due to market manipulation.
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.
Antonio Juliano, Founder of dYdX, said in a post on X.
In a separate post on X, the dYdX team reported that its DEX v3 insurance fund still holds $13.5 million. More importantly, the user’s funds are not bruised by this incident.
However, the protocol team was forced to part away with about 40% of its initial balance to cover the liquidation in the Yearn.Finance tokens market.
Antonio Juliano reiterated that it will conduct a thorough investigation and review its risk parameters to make appropriate changes.
Was the Alleged Targeted Attack on DYdX an Inside Job?
The profitable trade has nearly wiped out over $300 million in market capitalization from the Yearn.Finance token.
It has raised eyebrows in the crypto community about a potential inside job in the Yearn.Finance tokens market.
Some users are claiming about 50% of the Yearn.Finance token’s supply is held in 10 wallets currently controlled by developers.
On the contrary, Etherscan data suggests that some of these wallets are crypto exchange wallets.
DYdX is still the leading trading platform in the DeFi space. The protocol is currently valued at around $364 million, according to DefiLIama data.
It’s, therefore, wise for crypto investors to learn how to safely avoid DeFi crypto scams.
Do you think the targeted attack at dYdX was a potential inside job?
Shawn Munir
Shawn Munir is the CEO of Coinweb.com and spearheads all the collaborative partnerships for the platform. He bought his first Bitcoin in 2017 and never looked back. He is also an investor in 200+ Web3 startups and is considered an expert in the field. Before building Coinweb with his co-founders, he co-founded Presail, a management platform designed for companies and investors to manage their investments in Web 3. In addition to his entrepreneurial endeavors, Shawn serves on the United Nations...
