dYdX DeFi: 9M Dollars November Attack Post-Mortem

Crypto News- In a recent revelation, dYdX, a decentralized exchange, has laid bare the details of a targeted attack on its v3 platform in November. The fallout from this attack resulted in a staggering $9 million loss in its insurance fund, constituting approximately 40% of the entire fund. According to dYdX, the investigation has successfully unmasked the identity of the attacker, prompting the platform to consider legal actions against them.

The attacker orchestrated a highly sophisticated strategy by initiating 5x leveraged long positions in the native token of the DeFi protocol Yearn Finance, namely YFI-USD, spread across more than 100 wallets. Through the acquisition of spot YFI tokens using different addresses, the attacker single-handedly triggered a monumental 215% surge in the price of YFI.

dYdX DeFi: 9M Dollars November Attack Post-Mortem

Capitalizing on unrealized profits, the attacker expanded their YFI-USD positions, reaching an apex of around $50 million. In response to this escalating situation, dYdX took measures to counteract the threat by augmenting the initial margin requirement for the YFI-USD market and adjusting position sizes on November 17. Despite these efforts, the value of YFI plunged nearly 30% within an hour the next day, thwarting the attacker’s attempts to close their positions. Fortunately, the insurance fund automatically compensated for the losses as the attacker’s holdings spiraled into negative territory.

dYdX Exchange: Unmasking the 9M Dollars Attack and Strengthening Defenses

Interestingly, a week before the YFI incident, the same assailant employed a comparable strategy to target SUSHI-USD, withdrawing roughly $5 million in profits. However, dYdX had preemptively raised the initial margin requirement to 100%, preventing any further earnings from affecting the v3 insurance fund.

It’s crucial to note that no customer funds were adversely impacted by these orchestrated attacks, and the attacker failed to profit from manipulating the YFI market. In response to these security breaches, dYdX has diligently upgraded its v3 trading platform, fortifying it with improved open-interest monitoring and alerting capabilities. Furthermore, the forthcoming v4 chain is meticulously designed to avert risks akin to this incident, incorporating a novel software feature that automatically adjusts the initial margin fraction in response to abnormal price movements.