Leading decentralized cryptocurrency exchange dYdX has published a report on a targeted hack that resulted in the loss of approximately $9 million, which constituted about 40% of its insurance fund, in November 2023. The report reveals the identification of the hacker and explores legal options.
dYdX’s announcement on the hack stated that the identity of the hacker has been established and communication with the perpetrator is ongoing, with legal actions being considered.
The platform disclosed that the hacker opened a large number of leveraged long positions on the YFI/USD trading pair using over 100 wallet addresses. YFI is the native asset of the DeFi protocol Yearn Finance. According to dYdX, the hacker purchased YFI tokens in the spot market using different wallet addresses, causing a 215% surge in the altcoin’s price and inflating the unrealized profit of the YFI/USD position to as much as $50 million.
In response to the incident, dYdX increased the initial margin requirement for the YFI/USD market on November 17, 2023, and reduced the base position and additional position size to prevent further transactions by the hacker. The next day, YFI’s price dropped by about 30% within an hour, and the hacker was unable to close the positions. dYdX emphasized that the insurance fund automatically compensated for the losses as the hacker’s positions fell into the negative.
The platform noted that a week before the YFI incident, the hacker targeted the SUSHI/USD pair using the same strategy and made approximately $5 million in profit. However, dYdX’s increase of the initial margin requirement to 100% prevented the attacker from realizing more gains, thus not affecting the v3 insurance fund. dYdX also highlighted that customer funds were not impacted by the attacks and claimed that despite the manipulation of the YFI market, the hacker failed to secure profits.
Furthermore, dYdX updated its v3 trading platform to prevent similar strategies from causing more attacks, improving open interest monitoring and alerts. The platform also mentioned that the upgraded v4 chain was specifically designed to mitigate such risks, featuring new software that automatically adjusts the initial margin ratio in case of abnormal price movements.