Yala’s Bitcoin-backed stablecoin, $YU, suffered a dramatic second depeg from its $1 USD peg, plummeting over 50% to as low as $0.41 within 24 hours.
This marks the project’s second major stability failure in just two months, raising serious questions about its over-collateralization model, liquidity management, and overall resilience in the DeFi ecosystem.
As of November 18, 2025, $YU is trading around $0.44, with its market cap slashed to approximately $39.6 million and 24-hour trading volume cratering 98.7% to just $11,600—indicating severe loss of confidence and liquidity.
The collapse began early on November 17, with $YU briefly recovering before sliding again to $0.42. Unlike algorithmic stablecoins that rely on incentives, $YU is over-collateralized by Bitcoin deposits, allowing users to mint $YU for use in cross-chain DeFi protocols.
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However, the depeg was triggered by runaway borrowing that drained liquidity pools on platforms like Euler Finance, where markets hit 100% utilization and borrow caps were set to zero to prevent further withdrawals. Liquidity pools on Ethereum Virtual Machine (EVM) networks are now over 90% composed of $YU itself, making swaps to USDC nearly impossible and trapping lenders.
DeFi analysts from YAM a syndicate of power users flagged “red flags” two days prior, highlighting abnormal borrowing by a Yala-linked address that collateralized $YU against itself at rates as high as 80%, despite consistent non-repayment.
They also noted thin liquidity across EVM chains and unresolved issues from a prior exploit. The Yala team has been largely unresponsive on social channels and Discord, with reports of team members quietly exiting.
Yala’s Response: In a terse X post, the team acknowledged “recent community concerns” and promised updates, but no concrete recovery plan has emerged. Bitcoin reserves remain unaffected and fully collateralized, per their claims, but retail panic has driven mass withdrawals.
On Solana, where ~$1 million in USDC liquidity exists, the peg holds temporarily—but this isolates the issue rather than resolving it. This isn’t Yala’s first brush with instability. Launched as a “Bitcoin-native liquidity protocol” backed by heavyweights like Polychain Capital, Galaxy Digital, and Amber Group, $YU aimed to bridge BTC’s liquidity into yield-generating DeFi and real-world assets.
Bridge exploit via faulty LayerZero OFT setup on Polygon; attacker minted 120 million unauthorized $YU and swapped ~$7.6M for USDC. Depeg to $0.20–$0.70; temporary shutdown of bridge functions. Partial fund recovery claimed; peg restored to ~$0.94 after team intervention and law enforcement involvement. Market cap dipped to $130M.
Runaway borrowing drains Euler pools; liquidity crisis amid warnings. Depeg to $0.41 54% drop; volume evaporates; markets frozen. Ongoing; $5.5M injected for liquidity support, but no full rebound. Peg unstable across chains.
The September hack exposed off-chain security lapses, while this latest event points to internal liquidity mismanagement rather than external malice—though some speculate an “inside job” given the borrowing patterns.
$YU’s collapse is part of a grim 2025 trend for experimental stablecoins, where even “over-collateralized” designs falter under stress: Thin pools amplify sell-offs; $YU’s EVM liquidity was illusory, dominated by its own token.
Recent depegs include $deUSD (-95% to $0.05), $USDX (-60%), $xUSD, and $dnUSD (-57%), eroding trust in yield-bearing and synthetic models. Total stablecoin market TVL outflows hit record highs in yield-bearing variants.
Events like this fuel calls for better collateral audits and redemption mechanisms, especially for BTC-backed assets in a post-TerraUSD world. No systemic crash yet, but it heightens caution around low-cap stablecoins. Investors are fleeing to battle-tested options like USDT or USDC.
Yala’s fate hangs on swift transparency and liquidity injections—failure could lead to permanent irrelevance, wiping out backers’ investments FDV now ~$30M, below raise prices. If exposed, prioritize redemptions where possible (e.g., Solana pools) and diversify.
This underscores a harsh DeFi truth: “Stable” is relative, and over-collateralization isn’t foolproof without deep, diverse liquidity.