dYdX loses $9 million in what is described as a targeted attack

On November 17, around $9 million from the decentralised insurance fund of the dYdX derivatives exchange were used to cover liquidations of user positions in the Yearn Finance (YFI) market.

Last night about $9m from the dYdX v3 insurance fund were used to fill gaps on liquidations processed in the YFI market. The v3 insurance fund remains well funded with $13.5m in funds remaining

No user funds were affected and our team is working to investigate the event

— dYdX (@dYdX) November 18, 2023

The team said the fund, with a balance of $13.5m, remains well funded and user funds were not affected; an investigation is underway.

According to founder and CEO Antonio Juliano, losses stemmed from a targeted attack on the exchange that included manipulation of the entire $YFI market.

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 https://t.co/djWHaaPIua

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

We are conducting the investigation with several partners and will be transparent about what we find, he added.

Arkham Intelligence researchers noted that the previous day’s roughly 40% drop in YFI price led to $50 million of liquidations on dYdX.

YFI’s price collapsed by almost 40% last night.

As this occurred, $50M of YFI Open Interest on dYdX was wiped out. Before that, dYdX made up almost half of the total open interest on YFI. pic.twitter.com/qZBDOeELGX

— Arkham (@ArkhamIntel) November 18, 2023

Experts noted that YFI typically trades infrequently on dYdX; however, a sharp price spike in recent days pushed open interest to a peak of $60m — roughly half of the asset’s total open interest.

Juliano confirmed the findings. He said the attack was carried out by well-capitalised actors intent on draining the insurance fund. Two weeks earlier, a similar attempt to manipulate the SUSHI market had been attempted; this time they withdrew a substantial amount in USDC before the price decline, the exchange’s chief executive said.

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

As a precaution against potential future incidents, the dYdX team raised the initial margin requirements for several low-liquidity tokens, such as EOS, RUNE, AAVE and YFI.

Earlier, on November 13 the platform launched to test the beta version of the main L1 network dYdX Chain based on Cosmos.