Yala's Silence, Liquidity Drain Fuel Rug Pull Fears in Stablecoin's Plunge

Yala Protocol's stablecoin YU, a Bitcoin-backed digital asset, has plunged to $0.47 as of November 17, marking its second major depegging since its May launch and sparking fresh concerns about the project's stability. The sudden drop followed a liquidity crisis on the Euler platform, where a suspicious address allegedly drained USDC-YU liquidity pools by borrowing at unsustainable rates without repayment. Euler has since suspended YU lending markets on Frontier, while Yala's team has remained silent, exacerbating fears of a potential rug pull.

The depegging began around 10:30 a.m. on Sunday, with YU losing nearly half its value in under 24 hours. On-chain data revealed that an address linked to Yala borrowed nearly all available USDC and a significant portion of YU funds from the Frontier market, pushing fund utilization to 100% and preventing withdrawals. A related wallet also borrowed USDC at elevated interest rates without repayment, further straining liquidity. The Euler team, which initially reached out to Yala for clarification, reportedly received no response, deepening uncertainty.

This incident follows a September breach in which attackers exploited a bridge vulnerability to mint 120 million unauthorized YU tokens on Polygon, temporarily breaking its dollar peg. A post-mortem analysis attributed the hack to an off-chain security lapse, highlighting systemic risks in the DeFi stablecoin market. With YU's market capitalization at just $130 million at the time, the September incident already eroded investor confidence. The latest depegging, coupled with Yala's lack of transparency, has raised questions about the project's long-term viability.

Yala has acknowledged community concerns and stated it is investigating the current crisis but has provided no timeline for resolution. Meanwhile, YU's peg remains intact on Solana, where nearly $1 million in USDC liquidity is available for price anchoring. However, the broader market remains volatile, with investors reevaluating positions in light of YU's instability.

The depegging underscores the fragility of algorithmic and reserve-backed stablecoins, particularly in a sector already reeling from high-profile failures like TerraUSD. The recent passage of the GENIUS Act, which mandates monthly audits and executive accountability for stablecoin issuers, aims to address such vulnerabilities. Yet, as Yala's case illustrates, rapid liquidity drains and opaque governance can still trigger systemic risks before regulatory frameworks fully take effect.