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dYdX Tightens Margin Requirements and Puts a Stop to ‘Highly Profitable Trades’: A Closer Look

Decentralized Exchange dYdX Introduces New Trading Risk Mitigation Measures

Recently, the decentralized crypto exchange dYdX announced the implementation of new measures aimed at mitigating trading-related risks. The move comes after the exchange had to tap into its insurance fund, burning $9 million, in order to cover losses experienced by its users on November 17.

Increased Margin Requirements

dYdX has decided to heighten the margin requirements on several “less liquid markets,” which will impact an array of tokens including Eos (EOS), 0x Protocol (ZRX), Aave (AAVE), Algorand (ALGO), Internet Computer (ICP), Monero (XRM), Tezos (XTZ), Zcash (ZEC), SushiSwap (SUSHI), THORChain (RUNE), Synthetix (SNX), Enjin (ENJ), 1inch Network (1INCH), Celo (CELO), Yearn.finance (YFI), and Uma (UMA).

Insurance Fund Triggered

The activation of the insurance fund to cover user trading losses was triggered by a profitable trade centered around long positions on the YFI token leading to nearly $38 million worth of positions being liquidated. Antonio Juliano, the founder of dYdX, characterized this as a “targeted attack” on the exchange. According to Juliano, this incident led to YFI’s open interest in dYdX surging from $0.8 million to $67 million in just a few days, as a result of the actions of a single individual. The initial margin ratios for $YFI were increased prior to the price crash, but this move was deemed insufficient in hindsight.

Pushing Back Against ‘Profitable Trading Strategies’

In response to the catastrophic event, it was announced that “highly profitable trading strategies” are now banned on dYdX. Continuing with mitigation measures, dYdX is offering a bounty in exchange for useful information pertaining to the incident without offering any negotiations or rewards to the original attacker. The exchange has already made significant progress in identifying the attacker and is currently liaising with the Federal Bureau of Investigation (FBI).

Impact on YFI Token

The repercussions were significant for the YFI token, as the value suffered a precipitous 43% decline within hours on November 17, following a 170% rise during the month of November. This wipeout resulted in over $300 million in market capitalization being shaved off the recent gains. Nevertheless, at the time of writing, the token has still managed to net more than 90% gains in the past 30 days, trading at an impressive $9,190.

The Yearn.finance Perspective

In spite of these developments, the team at Yearn.finance has refrained from disclosing any official details regarding the incident. Yet, it has been confirmed by sources close to the matter, and supported by Etherscan data, that developers on the team do not control the majority of the token supply. This denies initial worries about a potential scam concerning the YFI token.

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