Yala’s YU Stablecoin Fails to Regain Dollar Peg After Devastating Protocol Attack

Yala’s Bitcoin-collateralized stablecoin YU has suffered its biggest stress test to date, after an exploit attempt over the weekend sent its price crashing to $0.2046—a staggering 80% devaluation that has shaken investor confidence and raised urgent questions about the project’s cross-chain security and liquidity depth.

According to Yala, the breach briefly destabilized YU’s $1 peg but did not compromise Bitcoin collateral, which remains secure in vaults or self-custody. “All funds are safe,” the team reiterated in a post on X, adding that they are working with blockchain security firm SlowMist and other partners to trace the exploit and contain further risk. As a precaution, Yala temporarily disabled its Convert and Bridge functions to limit contagion, though all other protocol operations remain live.

Blockchain analytics firm Lookonchain reported that the attacker exploited Yala’s protocol to mint 120 million YU on Polygon. Of this, 7.7 million YU was bridged to Ethereum and Solana, swapped for 7.7 million USDC, and later converted into 1,501 ETH before being scattered across multiple wallets.

The attacker still holds more than 22 million YU on Ethereum and Solana, alongside 90 million unbridged YU on Polygon—leaving the exploit’s aftershocks reverberating across chains.

Liquidity Crisis Amplified Peg Loss

YU’s vulnerability was exacerbated by its thin liquidity profile: just $340,000 in USDC was available in YU’s Ethereum pool at the time of the attack. This shallow depth left the stablecoin acutely exposed to slippage during high-volume selling, with trading activity spiking more than 500% as arbitrageurs and speculators piled in.

Although YU briefly rebounded to $0.917, it has since struggled to restore its peg and is currently trading between $0.78–$0.92, according to DEX Screener. Major exchanges, including Bybit and OKX, also suspended YU deposits and withdrawals amid network instability, further limiting arbitrage flows that might have helped stabilize the token.

Launched as an overcollateralized Bitcoin-backed stablecoin, YU was designed to offer a decentralized alternative to giants like Tether (USDT) and Circle’s USDC. It grew rapidly to a market cap of roughly $140 million, but the incident exposes the operational fragility of smaller, cross-chain stablecoins competing in a marketplace now approaching $300 billion in total capitalization.

The exploit also echoes past “infinite mint” attacks that have plagued other DeFi protocols, underlining the recurring risks of cross-chain bridges and governance gaps in newer stablecoin projects.

A Test of Trust and Resilience

Yala has pledged to release a full post-mortem and continues to monitor the stolen funds on-chain. But the bigger challenge lies ahead: restoring confidence in YU’s ability to maintain its peg under stress.

As stablecoins cement their role as the backbone of decentralized finance and global crypto markets, the Yala incident is a stark reminder that deep liquidity, airtight security, and transparent governance are essential for sustaining long-term stability.