The Yala stablecoin (YU), a Bitcoin-native over-collateralized stablecoin backed by Polychain, lost its dollar peg around 5:14 UTC+8 today following a protocol attack that sent YU crashing to $0.2074 before recovering to $0.917.
The Yala team promptly addressed the incident on X (formerly Twitter), confirming the attack and its impact on the YU stablecoin’s price stability.
“Our protocol recently experienced an attempted attack that briefly impacted YU’s peg,” the team said.
Yala Co-founder Vicky Fu disclosed that the team is now working with external security specialists, including SlowMist and Fuzzland, to investigate the breach.
The team assured users that all assets remain secure while they focus on restoring stability and strengthening protocol security.
After the announcement, YU, designed to maintain a stable $1 value, fluctuated between $0.798 and $0.996.
Source: DexScreener
Currently, only $784,000 in USDC liquidity exists in the YU stablecoin pool on Ethereum.
The Yala team has temporarily disabled the Convert and Bridge functions to ensure complete stability during system improvements.
In a September 14 X post, the team stated, “All other protocol functions remain unaffected, and user assets remain safe. We’ll share more updates once maintenance is complete.”
A stablecoin’s core function is maintaining a 1:1 “peg” to fiat currency value; without this peg, the fundamental purpose fails.
YU operates as an over-collateralized stablecoin, meaning it’s backed by digital asset reserves (BTC) that exceed the stablecoin’s own value.
With YU still struggling to maintain its peg, Yala faces a critical period for securing user trust and industry confidence.
At roughly $140M market cap, YU remains small compared to established stablecoins like Tether (USDT) and Circle (USDC), which hold $170 billion and $73 billion market capitalizations, respectively.
Even newer stablecoins like Ethena (USDe) and WLFI (USD1) command $13.5 billion and $5.8 billion valuations, respectively.
However, YU’s peg struggles aren’t the first of their kind in the crypto market.
Even Tether’s USDT temporarily lost its dollar peg in 2023 when two major trading pools became heavily imbalanced.
Tether CTO Paolo Ardoino explained that volatile stablecoin markets create opportunities for attackers to exploit liquidity pool imbalances.
More recently, in April, synthetic stablecoin sUSD, long pegged to the U.S. dollar within the Synthetix ecosystem, dramatically lost its peg, dropping to $0.68.
