Polychain-Backed Yala Stablecoin YU Plummets to $0.20 After Protocol Attack

The Polychain-backed Yala stablecoin (YU) crashed to $0.20, losing its $1 peg following a sophisticated protocol attack. The Bitcoin-backed stablecoin, designed for DeFi liquidity, partially recovered to $0.78 but remains under pressure, raising concerns about the security of algorithmic stablecoins.

Blockchain analytics firm Lookonchain reported that the attacker minted 120 million unauthorized YU tokens on Polygon, selling 7.71 million across Ethereum and Solana for 7.7 million USDC, which was then converted to 1,501 ETH and dispersed across multiple wallets. The attacker still holds 22.29 million YU on Ethereum and Solana, with 90 million unbridged on Polygon. Yala’s team, collaborating with SlowMist and Fuzzland, confirmed the breach and disabled Convert and Bridge functions to stabilize the protocol, assuring users that Bitcoin deposits remain secure in self-custodial vaults.

The incident, which drained $7.7 million, underscores vulnerabilities in cross-chain protocols, with YU’s Ethereum pool holding only $340,000 in USDC liquidity, per DEX Screener. Yala, which raised $8 million from Polychain Capital and Ethereal Ventures in 2024, faces a critical challenge to restore trust. Analysts, including Tether’s CTO Paolo Ardoino, note that liquidity imbalances, as seen in Tether’s 2023 depeg, exacerbate such attacks.

The crypto community on X expressed alarm, with some calling for stricter audits. Yala’s response, including planned security upgrades, will be pivotal to regaining investor confidence in its $119 million market cap stablecoin.