DeFi Sneak Attack
dYdX Attacked: Mass liquidations hit dYdX’s V3 Yearn Finance (YFI) market Friday night. YFI is down 40%, dYdX’s insurance fund was forced to pay out $9M, and the exchange’s founder is calling it an attack!
Contracts outstanding on dYdX’s YFI market had risen steadily since November 8, increasing from $0.8M to $67M on Friday. YFI gained 160% during this period, and dYdX accrued more YFI open interest than any other perpetuals trading platform.
The buildup in open interest is mainly attributable to a single actor who had unsuccessfully attempted to manipulate and attack the dYdX SUSHI market similarly a couple of weeks prior. As YFI was getting sold in spot markets on Friday night, this actor withdrew USDC profit from their dYdX account.
dYdX’s founder believes that the attacker’s goal was to drain his exchange’s insurance fund, but it is likely that dYdX was just collateral damage in a broader manipulation scheme to extract profits from YFI markets.
While November crypto exchange volumes are on track to double cycle lows set in September, liquidity remains extremely thin, with volumes down 87% from all-time highs. It is important to remember to never follow price when investing in crypto (especially in the current market) and to always do your own research!