Borrower Drains Yala's Liquidity, Triggers DeFi Stability Fears

Yala, the stablecoin protocol behind YU, faces mounting scrutiny as a suspicious address has borrowed nearly all available USDC and a significant portion of YU funds from the Yala Frontier market on Euler without repayment. The activity has driven liquidity utilization to 100%, preventing lenders from withdrawing funds, and Euler has set lending limits for Yala's market to zero. The DeFi community YAM flagged the issue, comparing it to the earlier USDX crisis, while Yala stated it is "actively investigating" community concerns.

The problematic address, linked to Yala, has borrowed USDC at extremely high interest rates but has yet to repay the debt, exacerbating liquidity pressure. This has left the Yala Frontier market unable to service withdrawals, raising fears of a potential collapse in confidence. YAM noted that while YU maintains a stable peg on Solana-with-nearly $1 million in USDC liquidity available for redemptions-the situation remains precarious.

Yala's lack of public response has deepened unease. The protocol has not addressed the Euler team or Discord community users, despite the severity of the issue. Meanwhile, YAM reiterated that no confirmed crisis has been declared, urging stakeholders to monitor updates before drawing conclusions. The team's silence contrasts with the urgency of the liquidity crunch, as the market's full utilization rate leaves no room for operational flexibility.

The risks extend beyond Euler. YU's effective liquidity on EVM chains is minimal, with the mainnet PSM holding only about $50,000 in USDC, complicating large-scale liquidations. This fragmentation of liquidity could amplify instability if redemption demands surge. YAM also highlighted that Yala's September 2025 bridge exploit recovery -recovering most of a $7.6 million loss- does little to mitigate current concerns.

Yala's situation underscores broader vulnerabilities in DeFi stablecoin models. While YU's Solana peg remains intact, the Euler market's collapse in functionality highlights the fragility of interconnected protocols. Analysts caution that such events could trigger cascading effects, particularly if users lose faith in YU's stability.