Decentralized exchange (DEX) dYdX has found itself in a significant challenge as it was forced to tap into its insurance fund to cover $9 million in user liquidations on November 17. Antonio Juliano, the founder of dYdX, has asserted that these losses result from a “targeted attack” against the exchange.
The incident unfolded as dYdX utilized its v3 insurance fund to address the aftermath of a sharp drop in the Yearn. Finance (YFI) token’s price. According to reports from the dYdX team, the fund was deployed “to fill gaps on liquidations processes in the YFI market.” This sudden and steep decline in YFI, a token that had previously seen a remarkable surge of over 170%, raised suspicions within the crypto community, leading to concerns about a potential exit scam.
The alleged attack specifically targeted long positions in YFI tokens on the exchange, liquidating positions valued at nearly $38 million. While acknowledging the losses affecting dYdX and the YFI market, Antonio Juliano believes that market manipulation played a significant role: “This was 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.”
Juliano reassured users that the v3 insurance fund still holds $13.5 million, and the incident impacted no user funds. He also committed to conducting a comprehensive review of risk parameters, with potential adjustments to v3 and the dYdX Chain software if necessary.
The profitable trade responsible for the liquidations resulted in a reduction of over $300 million in market capitalization for the YFI token. This turn of events made some question the possibility of insider involvement in the YFI market. Claims emerged that 50% of the YFI token supply was held in 10 wallets controlled by developers, though Etherscan data suggests that some of these holders are associated with crypto exchange wallets.
In the wake of these developments, the crypto community is closely monitoring the situation, seeking answers and transparency regarding the targeted attack and its implications for dYdX and the broader DeFi landscape.