Yearn Finance: A Closer Look at the Recent Vault Incident

Incident Overview

Yearn Finance, a prominent player in the decentralized finance (DeFi) space, recently disclosed an issue with its yUSND vault on the Arbitrum network. The problem stemmed from a lack of liquidity in the USND token, causing significant slippage when swapping liquidation rewards.

Impacted Strategy

The incident specifically affected the vault's rETH Stability Pool Strategy, where 28% of its assets were allocated.

Financial Impact

Losses: Just over $25,000 in USND.
Yield Decrease: A 5.2% decrease in yield for depositors.
Resolution: Yearn quickly addressed the issue, covering the losses to protect user funds.

Timeline

Incident Date: September 28.
Disclosure Date: November 26.
Losses Covered By: October 11.

Preventative Measures

To prevent similar issues in the future, Yearn plans to:

Offload collateral in smaller portions to minimize slippage.
Implement a new price-guard mechanism as a safety measure.

Yearn Finance's Track Record

Originally launched as iearn Finance in 2020, Yearn has faced several challenges:

$11 million flash-loan attack in 2021.
$11.4 million loss due to a copy-paste error in 2023.

Despite these setbacks, Yearn remains a trusted name in DeFi, with a current total value locked (TVL) of $343 million.

Conclusion

While Yearn has faced criticism and setbacks, it continues to be a prominent player in the DeFi space. The recent incident serves as a reminder of the risks involved in DeFi, even for well-established platforms. Users should always be aware of the potential for losses and the importance of risk management in this volatile market.