May 22, 2024
dYdX Identifies Attacker, Mulls Legal Action
Latest Cryptocurrency News

dYdX Identifies Attacker, Mulls Legal Action

Decentralized exchange dYdX has identified the culprit behind the targeted attack on its v3 platform on November 17, 2023, resulting in a $9 million loss from its insurance fund. The exchange, now considering legal action, has taken measures to prevent future coordinated attacks with similar tactics. dYdX has enhanced its v3 trading platform by improving open-interest monitoring and alerts.

The newly introduced v4 chain is specifically designed to mitigate risks, featuring an automatic adjustment of the initial margin fraction in response to abnormal price changes. Reviewing the attack approach, dYdX observed the assailant opening multiple 5x leveraged long positions across 100 wallets using YFI/USD. The attacker strategically bought Yearn.finance (YFI) tokens, leading to a 215% price increase.

YFI is the native token of the decentralized finance protocol Yearn.finance. The attacker maximized unrealized profits by entering additional YFI/USD positions, reaching a peak of around $50 million. To curtail the attacker’s activities, on November 17, the platform raised the initial margin requirement and lowered the base and incremental position sizes in the YFI/USD market.

As the price of YFI plummeted nearly 30% within an hour on the following day, the attacker was unable to close their positions. The insurance fund automatically covered losses when the attacker’s holdings turned negative, according to dYdX.

It was revealed that a week before the YFI incident, the attacker employed a similar strategy on SUSHI/USD, making approximately $5 million in profits. Notably, this did not impact the v3 insurance fund, as dYdX had increased the initial margin requirement to 100%, preventing the attacker from gaining further.

dYdX clarified that these attacks did not impact customer funds and asserted that the attacker did not profit from manipulating its YFI market. The exchange’s proactive measures aim to bolster security and prevent such incidents in the future.

Image By vecstock

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