dYdX suffers a $9 million insurance fund breach linked to alleged Yearn.Finance market manipulation

●dYdX v3 insurance fund used $9 million to fill the liquidity gap following Yearn.Finance liquidation.

●The amount represented 40% of its v3 insurance fund, with the single incident affecting both ecosystems starkly.

●The scary price action was, in fact, caused a result of liquidations of YFI longs looking to ride the pump on dYdX.

●The v3 insurance fund remains well funded with $13.5m in funds remaining. The network indicaties no user funds were affected.

dYdX (DYDX), a proof-of-stake blockchain network, suffered a huge loss following the recent incident in the Yearn.Finance network, compelling the network to dip into its insurance fund in a calculated attempt to fill the liquidity gap.

dYdX spends $9 million to cauterize YFI related bleed

The dYdX network spent $9 million from its version three’s (v3) insurance fund in response to a ‘targeted attack’ involving the manipulation of Yearn.Finance’s YFI token.

The $9 million, which makes up for 40% of the network’s insurance fund, was put towards filling gaps on liquidations processed in the YFI market. Notably, the v3 insurance fund remains well funded with $13.5m in funds remaining.

The incident that saw one network exploited, left two losers in its wake, with the warning signs starting when YFI token price dropped by around 40% after having pumped 2x in a week. The move saw the Yearn.Finance ecosystem wipe out up to $200M off the token’s market cap.

All signs had pointed to inside dumping, until recent revelations that the striking price action was, in fact, the aftermath of liquidations of traders that had longed YFI in pursuit of riding the pump on DYDX token price. However, the YFI longs fell victim to what looks suspiciously like another ‘highly profitable trading strategy’.

dYdX acknowledges damage

dYdX had acknowledged the damage, assuring community members that no user funds had been affected. Its founder, Antonio Juliano also reiterated the same with a  follow-up tweet elaborating on what had gone on behind the scenes, saying, “This was pretty clearly a targeted attack against dYdX, including market manipulation of the entire YFI market.”

Juliano also listed some of the reasons that made him think the YFI network incident was an intentional market manipulation attempt by a well-capitalized actor(s) designed to drain funds from the dYdX insurance pool.

Nevertheless, the attack left the dYdX market experiencing higher margin requirements particularly for low liquidity tokens like Aave (AAVE), Algorand (ALGO), SushiSwap (SUSHI), and THORChain (RUNE), among others.