dYdX Bans ‘Highly Profitable Trading Strategies’ After Targeted Trades on Exchange

On the 17th of November, an unknown individual who may have been working as part of a team targeted the dYdX exchange and its YFI token.

Allegedly, the same actor had previously tried a similar strategy on the exchange’s SUSHI market merely 2 weeks prior.

Good Trades Or Malicious Intent?

These trades, which the platform’s staff have classified as an attack, were done using a series of transactions that ultimately caused open interest on the exchange to surge by over $66 million and resulted in $9 million of its insurance fund being burned in order to keep it afloat.

Thankfully, no user funds were affected by the trade.

“Last night about $9m from the dYdX v3 insurance fund were used to fill gaps on liquidations processed in the YFI market. The v3 insurance fund remains well funded with $13.5m in funds remaining. No user funds were affected and our team is working to investigate the event.”

However, stopgap measures have since been implemented to prevent further attacks. Until further notice, initial margin requirements for trades of “less liquid” tokens will increase.

As an immediate measure, we have increased initial margin requirements for less liquid markets:$EOS, $ZRX, $AAVE, $ALGO, $ICP, $XMR, $XTZ, $ZEC, $SUSHI, $RUNE, $SNX, $ENJ, $1INCH, $CELO, $YFI, $UMA, $SUSHI

We will continue to monitor, but believe this to be an important first…

— dYdX (@dYdX) November 18, 2023

Meanwhile, the search for the person – or team behind the trade is underway.

dYdX Considers the Event an Attack

The reference to the Mango Markets debacle is due to a series of trades targeting long positions on the exchange, which are being considered an attack by the owners of the platform.

dYdX’s Founder, Antonio M. Juliano, stated that his team was already handing over what info they had on the author to the FBI. Furthermore, Juliano stated that any bounties given out would be put towards rewarding community members who helped trace down the alleged attacker.

No whitehat olive branch would be extended to the attacker – assuming that law enforcement would take the side of dYdX and consider the trades illegal. Avraham Eisenberg, who executed a similar “trading strategy” against Mango Markets, has been charged with criminal offenses – however, his trial has been postponed, and it is unclear if the government will take the platform’s side at all.

In the meantime, dYdX has – in their own words – banned all highly profitable trading strategies on the platform.

Sorry, highly profitable trading strategies have now been banned on dYdX

— dYdX (@dYdX) November 18, 2023

Although the sense of humor shown by the site’s PR team is noteworthy, one must now wonder just how profitable a trade can be before his account gets shut down.