Trader Builds Massive Position on dYdX
A single trader has built up a massive position on the cryptocurrency exchange dYdX against the Yearn Finance’s YFI token, leading to an 8,000% jump in open interest for it. This was ahead of a price crash that the exchange’s founder said was part of an attack to drain its insurance fund.
YFI Open Interest Jumps
The attack saw open interest on dYdX for YFI jumped from around $800,000 to $67 million as the trader built up their position and led to a YFI price crash amid a cascade of liquidations that topped $38 million in just 24 hours, wiping out $300 million of YFI’s market capitalization.
Well-Capitalized Actor Behind the Attack
Open interest represents the number of outstanding derivatives contracts that haven’t yet been settled, and according to dYdX’s founder a single, well-capitalized actor was behind the rise in the metric as on-chain data shows. The attack was previously attempted on the platform’s SUSHI market.
Attack Suspicions and FBI Cooperation
The attacker was suspicious, leading many to believe that the YFI price crash was part of an exit scam as developers hold a significant amount of the cryptocurrency, although on-chain data suggests some of the largest wallets belong to cryptocurrency exchanges. The founder of dYdX mentioned that his team is actively cooperating with the FBI by providing information about the suspected perpetrator.
dYdX’s Response and Market Ban
dYdX has decided not to offer any leniency or negotiation to the attacker, under the assumption that law enforcement will align with dYdX’s view and deem the trades illegal. The platform has, according to its own social media team, banned “highly profitable trading strategies,” as the team behind the protocol shows humor in light of the recent incident.
Hot Take
It’s important to be cautious when putting too much capital into highly speculative assets because you could be exposing yourself to increased risk, especially given the prevalence of potential attacks in the DeFi space. Building a position worth millions can have significant effects on a single asset and its entire ecosystem, so always make sure to conduct in-depth research and risk assessments before investing in such assets.
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