Yala Stablecoin YU Plunges to $0.20 Amid Protocol Attack, Team Races to Stabilize
In a dramatic turn for the cryptocurrency market, the Polychain-backed Yala stablecoin (YU) experienced a severe depeg on September 14, 2025 [1], crashing as low as $0.2074 before partially recovering to around $0.917. The incident, attributed to a targeted protocol attack, has shaken investor confidence in this Bitcoin-native, over-collateralized stablecoin and highlighted ongoing vulnerabilities in the DeFi space.
The Attack Unfolds
The breach occurred around 5:14 UTC+8, causing YU—designed to maintain a stable $1 peg—to plummet rapidly. According to on-chain analytics from Lookonchain [2], the suspected attacker exploited the protocol to mint 120 million YU tokens on the Polygon network. They then sold off 7.71 million YU across Ethereum and Solana, netting approximately 7.7 million USDC. This USDC was swiftly converted into 1,501 ETH and dispersed across various wallets, complicating tracing efforts.
The hacker reportedly still holds significant reserves: 22.29 million YU on Ethereum and Solana, plus an additional 90 million YU on Polygon. This leftover supply has fueled concerns about potential further dumps, exacerbating market volatility. Data from DexScreener showed YU fluctuating wildly post-attack, dipping between $0.798 and $0.996 before stabilizing somewhat.
Yala's team responded swiftly via an X post [3] on September 14, acknowledging the "attempted attack" and assuring users that "all assets remain safe." Co-founder Vicky Fu announced collaborations with security firms SlowMist and Fuzzland to probe the incident. To prevent further exploitation, the team disabled the Convert and Bridge functions, stating that other protocol operations remain intact. "We'll share more updates once maintenance is complete," the post read.
Impact on Liquidity and Market Sentiment
Currently, YU's liquidity on Ethereum stands at a modest $784,000 in USDC, a figure that underscores its relatively small scale in the stablecoin arena. With a market cap of about $140 million, YU pales in comparison to giants like Tether (USDT) at $170 billion or Circle's USDC at $73 billion. Even newer entrants such as Ethena's USDe ($13.5 billion) and WLFI's USD1 ($5.8 billion) dwarf it.
The depeg has triggered panic among holders, with YU down over 22% since the attack. Stablecoins like YU rely on over-collateralization with assets like Bitcoin to maintain their peg, but this event demonstrates how quickly trust can erode when exploits occur. Without a reliable 1:1 peg to the U.S. dollar, the core utility of such tokens—as a stable store of value or medium of exchange in volatile crypto markets—is compromised.
Broader Context: A Pattern of Stablecoin Instability
This isn't an isolated incident in the world of stablecoins. History is littered with similar failures that have cost billions and eroded faith in the sector. For instance, Tether's USDT briefly lost its peg in 2023 due to imbalanced trading pools, as explained by CTO Paolo Ardoino, who noted how attackers can exploit liquidity gaps during market turbulence.
More recently, in April 2025, Synthetix's sUSD dropped to $0.68—not from an attack, but from a botched protocol upgrade under SIP-420 aimed at improving capital efficiency. The changes inadvertently disrupted peg-maintenance mechanisms.
Going further back, TrueUSD depegged in October 2023 after halting minting through partner Prime Trust, sparking fears of insufficient fiat reserves. And the infamous 2022 collapse of Terra's UST remains a cautionary tale: Despite deploying 80,000 BTC (worth $9.2 billion at the time) to defend the peg, the ecosystem imploded, wiping out massive value.
Experts like former People's Bank of China Governor Zhou Xiaochuan [4] have warned of systemic risks, estimating a one-in-three chance of stablecoin collapses over the next decade. He points to issues like inadequate reserve custody, arbitrage failures during crises, and regulatory shortcomings. While initiatives like Hong Kong's Stablecoin Ordinance and the U.S. GENIUS Act aim to tighten oversight, Zhou argues that current frameworks fall short, urging better circulation data to gauge redemption risks.
Looking Ahead for Yala and the Stablecoin Sector
As Yala's team works to restore full functionality and bolster security, the incident serves as a stark reminder of the high-stakes environment in DeFi. For a project backed by heavyweight investor Polychain, regaining the peg and user trust will be crucial to its survival. Holders are advised to monitor official channels for updates, while the broader crypto community watches to see if this sparks renewed calls for stricter regulations.
In an industry where innovation often outpaces security, events like this underscore the need for robust auditing and rapid response protocols. Whether YU can fully recover its peg remains uncertain, but its fate could influence the trajectory of emerging stablecoins vying for a slice of the multi-trillion-dollar market.