dYdX, a decentralized exchange, has released a detailed report regarding the “targeted assault” it experienced on its v3 system back in November.
This attack led to a staggering loss of $9 million from its insurance reserves, accounting for roughly 40% of its entire fund.
The exchange’s statement mentioned that they have identified the individual responsible for the attack and are currently engaging with them. Moreover, dYdX is exploring legal avenues to address the situation.
The report revealed that the perpetrator initiated numerous 5x leveraged long trades in YFI-USD, across over 100 distinct wallets. By executing trades from various addresses, the attacker managed to artificially inflate the price of YFI by a whopping 215%, as per dYdX’s findings.
Subsequently, the attacker reinvested their growing profits back into more YFI-USD trades, reaching a peak of approximately $50 million, dYdX confirmed.
To counteract this aggressive strategy, the exchange adjusted the YFI-USD market’s initial margin requirements on November 17 and scaled down the permissible base and incremental trade sizes.
The day after, the value of YFI dropped by almost 30% within a single hour. However, the individual attempting to manipulate the market was unsuccessful in finalizing their transactions. As their assets sank deeply into the red, the dYdX platform’s insurance pool stepped in to cover their financial setbacks.
Just a week before the YFI incident, the same individual employed the same method against SUSHI, earning around $5 million in the process.
Nevertheless, this did not impact the v3 insurance reserve, as dYdX had previously raised the initial margin prerequisite to 100%, preventing the attacker from securing additional profits.
The firm assured that customer funds remained unaffected by the attacks and indicated that the attacker didn’t profit from manipulating its YFI market.
To prevent potential future attacks using similar strategies, dYdX has updated its v3 trading platform, enhancing open-interest monitoring and alert systems.
Furthermore, the exchange mentioned that the upgraded v4 chain has been specifically structured to mitigate risks akin to this particular incident.
This upgrade includes a new software feature that automatically modifies the initial margin fraction in response to abnormal price fluctuations.
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