Nostr Assets Temporarily Halts Deposit Functions Amidst Surging User Activity

dYdX had to take out millions from its insurance fund to cover user liquidations on its platform. This action was forced after the recent liquidations in the Yearn.Finance (YFI) market.

What Led To The $9 Million Insurance Fund Withdrawal?

On Saturday, November 18, the Yearn.Finance’s governance token (YFI) witnessed a drastic 43% decline in value, leading to a wipeout of $50 million in YFI Open Interest. 

Yearn Finance’s steep price decline came as negative sentiment hit the market amid allegations of potential market population. 

Consequently, this dramatic drop in price triggered a moment of fear, uncertainty, and doubt (FUD) within the crypto community, with some members speculating on the possibility of an exit scam.

In a post on the X (formerly Twitter) platform, the team behind dYdX disclosed that about $9 million from the platform’s v3 insurance fund was used to fill gaps in liquidations processed in the YFI market.

According to the decentralized exchange’s website, the insurance fund is “the first backstop to maintain the solvency of the system when an account has a negative balance.” The fund is not decentralized, meaning that the protocol’s team is directly responsible for deposits to and withdrawals from it.

In the announcement, the protocol’s team also clarified that the insurance reserve still remains “well-funded” with $13.5 million left. However, this only means that the protocol was forced to part with about 40% of its initial balance to cover the liquidations in the YFI market.

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Furthermore, the team asserted that no user funds were affected by this event. And they also revealed that they are currently investigating the incident.

Amid this, YFI saw huge deposits to exchanges and on-chain data shared by market platform Lookonchain shows one whale selling as prices plummeted. 

dYdX Founder Claims ‘Targeted Attack’ – What Next?

In a separate post on X, dYdX founder Antonio Juliano made accusations of market manipulation in the Yearn.Finance token market. The executive said: 

“This was pretty clearly a targeted attack against dYdX, including market manipulation of the entire $YFI market.”

Juliano reiterated that the protocol is currently investigating the incident alongside other partners. And the founder promised to be fully transparent with the results of their findings.

Furthermore, Antonio Juliano mentioned that there will be a thorough review of the protocol’s risk parameters. “We will be making appropriate changes to both v3 and potentially the dYdX Chain software if necessary,” he added.

dYdX remains one of the largest trading platforms in the decentralized finance (DeFi) space. As of this writing, the protocol boasts a total value locked of $372 million, according to data from DefiLlama.

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