DeFi exchange dYdX publishes post-mortem on $9 million November attack

Decentralized exchange dYdX today published a post-mortem on the “targeted attack” on its v3 platform in november that resulted in a loss of $9 million in his insurance fundwhich represented approximately 40% of the total.

“Investigation results have revealed the identity of the attacker and we are in contact with them,” dYdX wrote in the post. She is currently investigating the legal options against the perpetrator.

The platform noted that the attacker opened a significant number of long positions with 5x leverage YFI

-7.83%
-USD in over 100 wallets. YFI is the native token for the DeFi protocol Yearn Finance. Using different addresses, the attacker purchased spot YFI tokens, causing the price to increase by 215%, according to dYdX.

The attacker moved their unrealized profits into more YFI-USD positions, capped at around $50 million, the exchange said. On November 17, the platform increased the initial margin requirement of the YFI-USD market and reduced the base position and incremental position size to limit the attacker.

The next day, YFI’s price fell by almost 30% in an hour, and the attackers failed to close their positions. When the attacker’s assets fell into negative territory, the insurance fund automatically compensated their losses, according to dYdX.

The platform added that the attacker was targeted a week before the YFI incident SUSHI

-12.35%
-USD using the same strategy, withdrawing around $5 million in profits, but that did not affect the v3 insurance fund as dYdX increased the initial margin requirement to 100%, preventing the attacker from making more.

The company explained that customer funds were not affected by the attacks, and suggested that the attacker had not benefited from manipulating its YFI market.

To prevent more orchestrated attacks using similar strategies, dYdX said it has updated the v3 trading platform for better monitoring and alerts based on open interests.

The exchange added that the upgraded v4 chain is already designed to prevent similar risks to this incident. It says the upgrade chain comes with a new software feature that automatically adjusts the initial margin fraction in case of abnormal price movements.

The company did not immediately respond to The Block’s request for further comment.