YU stablecoin has depegged for the second time, falling over 70%! Liquidity has plummeted, leaving investors without recourse.

The stablecoin YU under Yala depegged for the second time this week, with the price falling to $0.1444 on November 18, a drop of over 70% in 24 hours, marking the second big dump in two months. Liquidity issues, technical vulnerabilities, and insufficient collateral have been cited as the main reasons. This is the second depeg of YU in just two months; in mid-September, attackers exploited vulnerabilities in the LayerZero multichain bridge or Private Key permissions to steal $7.64 million.

YU's second reading depegs, liquidity plummets, investors left with no recourse

The stablecoin YU under Yala experienced a severe depeg event again on November 18, with its price plummeting from the theoretical $1 to $0.1444, a drop of over 70% within 24 hours. This is the second major depeg that YU has encountered in just two months, indicating a structural flaw in the stablecoin's peg mechanism. Even more alarming for holders is the lack of liquidity for YU on both the EVM network and Solana, making it difficult for all holders to exit, thus pushing it back into the spotlight, with rumors of exit scams circulating.

The recent stablecoin depeg event lasted over 10 hours, during which the Yala team only issued a brief statement saying: “We have noticed the community's concerns and are actively investigating. Further updates will be released later.” This passive response further exacerbated market panic. Investors were unable to exit their positions in time and could only watch the value of their YU evaporate, highlighting the extreme risks investors face during a stablecoin depeg.

The lack of liquidity has become the most serious issue in this stablecoin depeg event. When a large number of holders attempted to sell YU simultaneously, they found that there were simply not enough buyers in the market to absorb the sell-off. The liquidity pool for YU on decentralized exchanges (DEX) was nearly dried up, and centralized exchanges also did not provide sufficient trading depth. This liquidity crisis caused the price of YU to collapse in a very short period, falling from $1 to $0.1444, resulting in significant losses for many investors who could not react in time.

Recent series of events, including the collapse of xUSD issuer Stream Finance and the depeg of deUSD and USDX, have put the “stability” of the term stablecoin under scrutiny and doubt. This series of stablecoin depeg events has exposed the current market's inadequate understanding of stablecoin mechanisms and the weak risk management capabilities of issuers.

The lending market has raised a red flag in advance, and abnormal operations have triggered warnings

Two days before the depeg occurred, the community had warned of abnormalities in the Yala lending market. DeFi player @yieldsandmore pointed out that an address highly correlated with Yala, with a borrowing rate as high as 80%, mortgaged YU to borrow all the USDC and most of the YU on the Euler Yala Frontier market, causing the market utilization rate to remain at 100% for an extended period, making it impossible for lenders to withdraw.

Such abnormal operations are seen as a precursor to a crisis facing stablecoins or lending protocols within the DeFi community. Normally, no rational borrower would be willing to pay an annual interest rate of 80%; this reckless large-scale borrowing often indicates that the borrower is engaging in emergency cashing out or hedging operations. The situation of “collateralizing a large amount of printed YU and borrowing extensively without regard to costs” is interpreted as the stablecoin issuer potentially facing a liquidity crisis, needing to urgently acquire real assets such as USDC.

The Euler team has adjusted the borrowing limit of the Yala Frontier market to 0 and called for a response from the Yala team. Although this regulatory measure is timely, it can no longer prevent the depeg of the stablecoin. The DeFi community Yam issued an early warning on the X platform on November 15, stating, “We have observed dangerous signals from the Yala stablecoin YU. A certain address closely related to Yala is fully borrowing USDC and most of the YU funds from the Yala Frontier market on Euler, despite the interest rates continuously remaining at 800%, yet it has never been able to obtain liquidity.”

Warning Signs of Abnormal Lending Operations

80% Extremely High Interest Rate Loans: Far exceeds reasonable levels in the market, indicating an urgent need for funds.

100% Utilization Rate: All available borrowable funds have been cleared by a single address, and other users cannot withdraw.

Collateral Quality Concerns: Using a large amount of self-issued YU as collateral raises doubts about its real value.

KOL @LumaoDoggie also revealed that team members have been leaving one after another last month, and that there has been stagnation or lack of response in official Discord and X posts, raising concerns from the outside world. A wave of team departures is usually a clear signal that the project is in trouble, and when core members choose to leave, it often means they have lost confidence in the future of the project.

Last month's vulnerability attack resulted in the illegal minting of 120 million YU

The depeg of YU is not the first time. Just last month, the LayerZero OFT bridge used by Yala suffered from a configuration error, which led to attackers illegally minting about 120 million YU on Polygon and then cross-chain exchanging them for real assets, resulting in a loss of about 7.6 million USD. In mid-September, attackers exploited the vulnerability of the LayerZero multi-chain bridge or private key permissions to mint approximately 120 million YU without authorization. About 77,000 YU were converted into an equivalent amount of USDC and further exchanged for 1,501 Ethereum (ETH) and dispersed to multiple wallets.

After the incident, the price of YU fell to around 0.20 USD, far below the pegged target of 1 USD. In response to the crisis, Yala suspended the 'Convert' and 'Bridge' functions and conducted an investigation in conjunction with a security company, while emphasizing that the bitcoin collateral assets were unaffected. Although Yala claimed to have recovered most of the funds and fully compensated the affected users, YU had also depegged to between 0.70 and 0.95 USD for a period of time before stabilizing later.

On November 17, it was reported that Yala released an update on recent liquidity issues regarding the YU token on the X platform: On September 14, 2025, attackers used a temporarily deployed key to build an unauthorized cross-chain bridge, taking away 7.64 million USDC (approximately 1,636 ETH), causing YU's reserves to be briefly unpegged. The team injected 5.5 million USD of their own funds and borrowed liquidity from the Euler platform, with YU fully recovering on September 23. On October 29, law enforcement in Bangkok arrested the attackers, and most of the funds have been recovered pending legal review.

However, some funds were converted to Ethereum in advance and the price fell, coupled with the fact that the attacker has already spent part of the funds, resulting in a reduced actual recovery value. Recently, retail investors withdrawing from DeFi has intensified market panic, leading to tight liquidity, which has affected Euler, with part of the positions and liquidity that were previously stabilizing YU being restricted. Yala plans to provide a clear solution by December 15, including the fund recovery path and next operational measures.

Why do stablecoins depeg? Three major structural flaws

Stablecoins, as an important infrastructure in the crypto market, have their core value in being pegged to fiat currencies or other assets to provide price stability and liquidity assurance. However, recent events of stablecoin depeg have shown that even stablecoins that claim to be backed by physical or crypto assets can experience value deviations from their target price.

The fundamental reasons for depeg can usually be categorized into three types: insufficient collateral or volatility of the pledged assets, market liquidity pressure, and risks related to smart contracts or operations. Firstly, some stablecoins rely on collateral assets that may experience value fluctuations or be insufficiently collateralized. Once the market experiences significant volatility, the market value of the collateral may not fully support the issuance volume, causing the stablecoin to potentially lose its peg.

Secondly, insufficient liquidity is also an important triggering factor for stablecoin depeg. In exchanges, AMMs, or lending platforms, if the liquidity pool for the stablecoin is limited, when a large number of users concentrate on exchanging or lending, the market's absorption capacity is insufficient, leading to a rapid price deviation. Especially when cross-chain operations are frequent or liquidity is concentrated in specific addresses, the risk of stablecoin depeg is further amplified.

Moreover, vulnerabilities at the technical and operational levels are also important factors in the destabilization of stablecoins. Errors in smart contracts, leakage of private keys, unauthorized minting, or security incidents involving multi-chain bridges can all increase the quantity of stablecoins in circulation in the market or restrict user withdrawals in a short period, thereby damaging the peg mechanism. The high leverage and automated strategies in the DeFi market may also trigger a chain reaction during price fluctuations, accelerating the depeg of stablecoins.

The earliest example of stablecoin depeg was the NuBits incident in 2018. In May 2022, the collapse of TerraUSD became one of the largest disasters in the history of stablecoins, with UST falling below 1 dollar, triggering panic redemptions. The supply of LUNA skyrocketed from about 1 billion coins to several trillion coins in just a few days, with its price plummeting to nearly zero. Fiat-collateralized stablecoins have also experienced depeg, as USDT once fell to about 0.8 dollars in 2018, and USDC briefly lost its peg to 1 dollar after the collapse of Silicon Valley Bank in 2023.