Yala’s Bitcoin-Backed YU Stablecoin Faces Challenges After Security Incident
Yala’s stablecoin YU, which is backed by overcollateralized Bitcoin reserves, experienced a significant disruption early Sunday after an “attempted attack” caused the token’s value to plunge to $0.2046. The incident has prevented YU from restoring its intended $1 peg.
The Yala team acknowledged the breach in a statement on X (formerly Twitter), confirming that the event briefly impacted YU’s peg. They emphasized that all funds remain safe, with Bitcoin deposits remaining self-custodial or secured in vaults. The team is collaborating with blockchain security firm SlowMist and other partners to investigate the breach thoroughly.
To mitigate further instability, Yala has temporarily disabled its Convert and Bridge functions, while assuring users that other protocol operations continue unaffected. The team has urged users to wait for official updates before re-engaging with the platform.
Details of the Attack and Token Minting
While Yala has not publicly confirmed any losses, blockchain analytics firm Lookonchain reported that the attacker exploited the protocol by minting approximately 120 million YU tokens on the Polygon network. The attacker then bridged and sold 7.71 million YU for roughly 7.7 million USDC across Ethereum and Solana blockchains.
Following the sale, the attacker converted the USDC into 1,501 ETH and distributed the proceeds across multiple wallets. At present, the attacker reportedly still holds 22.29 million YU on Ethereum and Solana, with an additional 90 million YU remaining on Polygon but unbridged.
Market Impact and Liquidity Constraints
YU is designed to maintain a stable $1 peg backed by Bitcoin reserves. Despite a market capitalization of approximately $119 million, it holds only $340,000 in USDC liquidity within its Ethereum pool, as per DEX Screener data. After the initial price drop, YU rebounded to $0.917 but has since declined again and remains under pressure, currently trading near $0.7869.
As of this report, Cointelegraph has reached out to Yala for additional comments but has not received a response.
Context: Growth of the Stablecoin Market
Amid this incident, the broader stablecoin market is approaching a $300 billion valuation milestone. Data from CoinMarketCap, CoinGecko, and DefiLlama show the market size ranging from $289 billion to $300 billion. This growth has accelerated since late 2024, driven primarily by major stablecoins such as Tether’s USDT, Circle’s USDC, and Ethena Labs’ yield-bearing USDe.
Chris Robins, head of growth at Axelar, noted that while $300 billion represents an early milestone, stablecoins have yet to achieve widespread mainstream adoption.
FinOracleAI — Market View
The Yala YU stablecoin incident is likely to have a negative short-term market impact. The unauthorized minting and subsequent loss of peg undermine confidence in YU’s stability and security, especially given its limited liquidity. The temporary suspension of key features may restrict user activity, further pressuring the token price. Market participants should watch for updates on the investigation outcome, restoration of protocol functions, and liquidity improvements as critical indicators for recovery.
Impact: negative
