dYdX Increases Margin Requirements, Prohibits Certain Trades

Crypto News DeFi

Written by Gile K.,

Market Sentiment Analyst

Last Updated: November 20, 2023

Key Takeaways

dYdX raises margin requirements and bans certain trading strategies after losing $9 million from its insurance fund.
The changes follow a targeted attack that liquidated nearly $38 million in YFI token trades.
The YFI token's value dropped significantly but still showed a substantial overall gain in the last month.

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dYdX Increases Margin Requirements, Prohibits Certain Trades

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dYdX, a decentralized cryptocurrency exchange, has announced new trading restrictions and increased margin requirements following a significant loss from its insurance fund.

This decision was made in response to a series of events that led to the loss of $9 million from the fund on November 17th, intended to compensate users for their trading losses.

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The crypto exchange revealed that the margin requirements have been heightened for various "less liquid markets," impacting a range of tokens, including Aave (AAVE), Eos (EOS), Monero (XMR), and several others. This change is a part of dYdX's strategy to mitigate trading-related risks.

These changes were triggered by a profitable trade that targeted long positions in the YFI token, resulting in nearly $38 million of liquidations.

dYdX founder Antonio Juliano described this incident as a "targeted attack" on the crypto exchange. He noted a dramatic increase in YFI's open interest and linked it to the actions of a single individual. This individual was also suspected of a prior attempt to manipulate the SUSHI market on dYdX.

We did take action to increase initial margin ratios for $YFI prior to the price crash, but this was ultimately not sufficient. The actor was able to withdraw a good amount of $USDC from dYdX right before the price crash.

In addition to the increased margin requirements, dYdX has banned "highly profitable trading strategies."

The YFI token experienced a dramatic 43% decline in value within hours on November 17th, following a significant rise earlier in the month.

This drop erased over $300 million in market capitalization from its recent gains. Despite this, the token still shows a considerable 90% gain over the past 30 days, trading at $8,956 at the time of writing.

The Yearn.finance team has not released official statements regarding the incident. However, sources close to the matter have refuted any allegations of a scam. Etherscan data corroborates that most of the YFI supply is not controlled by the developers but is held by large centralized exchanges.