dYdX V3 Victim of Attack: $YFI Suffers from Price Manipulation

In a recent development in the world of decentralized finance (DeFi), the dYdX V3 protocol was the target of a targeted manipulation attack, causing a stir around the Yearn Finance protocol’s native token, $YFI.

In a short span, $YFI open interest on the dYdX platform went from $0.8 million to a staggering $67 million.

This exponential growth, according to dYdX founder Antonio Juliano, was orchestrated by a single actor, identifiable through fund movements on the Blockchain.

Here are the main points we know about the $YFI incident on dYdX so far:

Reminder no user funds have been lost, but it is critical we understand what happened and adjust accordingly

– in the part few days $YFI open interest on dYdX spiked from $0.8m -> $67m
– basically all of…

— Antonio | dYdX (@AntonioMJuliano) November 18, 2023

This same individual had previously attempted a similar attack, without success, on dYdX’s $SUSHI market just about two weeks ago.

Upon detecting the alterations, precautionary measures were quickly taken, such as increasing the initial margin ratios for $YFI, before the price collapsed.

Despite instant support in dYdX the shares were insufficient

Before the decrease in the value of the token, the attacker managed to withdraw a considerable amount of $USDC from the dYdX platform, generating the exchange of assets at a disproportionate price with his manipulation.

The sharp drop in the price of $YFI after the attack on the spot market is suspected to have been intentionally caused by this same actor or another unknown actor in coordination, with the aim of impacting the high open interest in dYdX.

The dYdX team maintains communication with centralized exchanges to validate their perceptions of these events and is in the process of investigation.

These events strongly point to an intentional maneuver of market manipulation, carried out by an actor with considerable financial resources.

Although dYdX’s insurance fund lost around $9 million, it is important to emphasize that user funds were not affected by the attack.

Additionally, there is a remainder of $13.5 million in the insurance fund.

Juliano has assured that all relevant information about this incident will be shared both publicly and with the relevant authorities.

The goal is to strengthen the security not only of the blockchain, but also of other trading platforms to avoid these types of attacks in the future.

This event, although it has left certain questions about security and decentralized governance, occurred in dYdX V3, where some aspects such as the order book and matching remain centralized, unlike the recently launched dYdX Chain, which has different risk controls.

The community eagerly awaits more details and next actions from the dYdX team to ensure integrity and stability in the DeFi ecosystem.