Liquidity Crisis Shatters Yala's $YU Peg, Exposing DeFi's Vulnerabilities

The Yala stablecoin (YU) has plunged nearly 53% from its dollar peg, marking its second major depeg since launching in May 2025. The collapse, which saw YU drop to $0.47 as of Nov. 16 (UTC), was driven by a liquidity crisis triggered by aggressive borrowing on the Euler platform, according to multiple reports. The incident has reignited concerns about the stability of DeFi-backed stablecoins and raised questions about Yala's governance and risk management.

The depeg began around 10:30 a.m. Sunday as a suspected insider wallet drained USDC–YU liquidity pools, prompting Euler to suspend YU lending markets. Yala's team has remained silent on the cause, with no official response on its Discord channel, fueling speculation of a potential rug pull. This follows a September incident where a bridge vulnerability allowed hackers to mint 120 million unauthorized YU tokens, temporarily breaking the peg before the team restored stability.

In a Nov. 18 statement, Yala acknowledged the liquidity challenges and outlined its response. The team cited a September hack that cost $7.64 million in USDC and attributed the recent volatility to a broader retail exodus from DeFi, compounding existing liquidity pressures. Despite injecting $5.5 million to stabilize YU post-hack, the project faces additional hurdles as Euler restricts positions used to maintain the peg. Yala emphasized it is working with law enforcement and partners to secure funding but warned the process will take time.

The crisis has exposed vulnerabilities in DeFi stablecoin models, with analysts highlighting the risks of over-reliance on concentrated liquidity pools. The YAM team had previously warned of similar risks due to bridge vulnerabilities and unusual borrowing activity. Yala's market capitalization has since fallen to $39.6 million, with trading volume collapsing 98.7% to $11,600, underscoring the erosion of investor confidence.

Yala committed to announcing a detailed recovery plan by Dec. 15, 2025, including steps to restore the peg and secure long-term liquidity. The timeline aligns with ongoing legal efforts to recover funds from the September hack, where most assets were reclaimed after the Bangkok police arrested the perpetrator in late October. However, the recovery was partially offset by a post-seizure ETH price drop, reducing the value of returned assets.

The incident underscores the fragility of algorithmic stablecoins in a volatile market. While Yala's backers-Polychain, Amber, and Galaxy-initially provided institutional support, the recent turmoil reveals how even well-capitalized projects can falter under liquidity shocks. For the DeFi ecosystem, the case highlights the need for stricter collateral management and transparent governance to rebuild trust.