The Yala stablecoin (YU), a Bitcoin-native over-collateralized stablecoin backed by Polychain, encountered a protocol attack that led to a loss of its dollar peg. The incident occurred around 5:14 UTC+8, causing YU to plummet to $0.2074 before eventually recovering to $0.917.
In response to the attack, the Yala team swiftly addressed the issue on X (formerly Twitter), acknowledging the attempted attack and its impact on YU’s price stability. The team stated, “Our protocol recently experienced an attempted attack that briefly impacted YU’s peg.” They further mentioned that they are collaborating with security partners, including SlowMist and Fuzzland, to investigate the breach.
Despite the attack, the team assured users that all assets remain secure, and they are focused on restoring stability and enhancing protocol security. As a result of the incident, YU’s value fluctuated between $0.798 and $0.996, showcasing the instability caused by the attack.
Currently, there is only $784,000 in USDC liquidity in the YU stablecoin pool on Ethereum. To ensure stability during system improvements, the Yala team has temporarily disabled the Convert and Bridge functions. They emphasized that all other protocol functions are unaffected, and user assets remain safe.
However, according to Lookonchain, the suspected attacker of the Yala stablecoin minted 120 million YU tokens on Polygon and sold 7.71 million across Ethereum and Solana for 7.7 million USDC. The hacker then exchanged the USDC for 1,501 ETH and distributed it among various wallets. The attacker still holds 22.29 million YU on Ethereum and Solana, with 90 million YU remaining on Polygon.
In the aftermath of the attack, YU holders are anxious as the stablecoin has experienced a significant 22% drop since the incident, raising concerns about its ability to regain its peg. The stability of a stablecoin is crucial as it is designed to maintain a 1:1 peg to fiat currency value.
Yala’s struggles with maintaining its peg are not unique in the crypto market. Even established stablecoins like Tether (USDT) have faced challenges in the past. Tether temporarily lost its dollar peg in 2023 due to imbalanced trading pools.
The recent incident with YU highlights the ongoing challenges faced by stablecoins in maintaining their pegs. Despite being over-collateralized with digital asset reserves, YU is still grappling with peg stability, posing a critical period for Yala to restore user trust and industry confidence.
As the crypto market evolves, the stability of stablecoins remains a key area of focus for industry players and regulators. The recent incidents involving stablecoins losing their pegs underscore the importance of robust security measures and regulatory oversight to ensure the stability and reliability of these digital assets.