Yala's YU Stablecoin Fails to Regain $1 Peg After Protocol Attack, Trades at $0.79

Yala's Bitcoin-backed stablecoin YU has failed to restore its dollar peg following an attempted protocol attack on September 14, 2025, that sent the token plummeting to $0.2046. The Yala team confirmed the incident on X, stating it "briefly impacted YU's peg" while assuring that all user funds remain safe with Bitcoin deposits staying in self-custody or vaults.

Blockchain analytics firm Lookonchain reported the attacker exploited the protocol by minting 120 million YU tokens on Polygon, then bridging and selling 7.71 million YU for 7.7 million USDC across Ethereum and Solana. The attacker converted proceeds into 1,501 ETH and dispersed funds across multiple wallets, while still holding 112.29 million unbridged YU tokens.

Despite a market cap of $119 million, YU faces liquidity challenges with only $340,000 in USDC liquidity in its Ethereum pool. After briefly recovering to $0.917, the stablecoin has been trading around $0.7869, well below its intended $1 peg. Yala has disabled Convert and Bridge features as a precaution and is working with security firms SlowMist and Fuzzland to investigate the breach.

The incident occurs as the broader stablecoin market approaches $300 billion, dominated by USDT ($170B) and USDC ($73B). This event highlights ongoing vulnerabilities in smaller stablecoin projects despite backing from prominent investors like Polychain.