Yala’s Bitcoin-backed stablecoin, YU, has been under heavy pressure since the weekend after an attempted protocol attack sent it plummeting to $0.20. The team behind Yala has confirmed that all user funds remain secure, but the stablecoin has still not fully regained its $1 peg. This incident has sparked concerns about the stability of Yala’s digital finance strategy, particularly as the project seeks to grow adoption in the Middle East and North Africa region.

YU Stablecoin Drops Sharply

The attack occurred early Sunday and briefly destabilized the Bitcoin-collateralized YU token, which is designed to maintain a 1:1 peg to the U.S. dollar. According to Yala, the protocol was targeted in what they called an “attempted attack” that caused YU to crash as low as $0.2046 before rebounding to $0.91. However, the stablecoin has since been trading around $0.78, indicating that its peg remains under pressure.

The Yala team announced on X that they have paused key features such as Convert and Bridge to prevent further volatility. Other protocol functions remain active, and users have been asked to wait for official updates before re-engaging with the platform.

Related read: Tether Unveils USAT Stablecoin, Taps Bo Hines as CEO of US Arm

Security Investigation Underway

Yala’s co-founder, Vicky Fu, stated that the team is working closely with security partners including SlowMist and Fuzzland to investigate the breach. Yala has emphasized that Bitcoin collateral remains self-custodial or stored in secure vaults, with no reported losses. Still, the lack of a clear timeline for peg restoration has left many holders worried about the token’s long-term stability.

Blockchain analytics firm Lookonchain reported that the attacker minted 120 million YU on Polygon and sold roughly 7.7 million tokens for 7.7 million USDC across Ethereum and Solana. The proceeds were then converted into 1,501 ETH and spread across multiple wallets. The attacker still holds a large amount of YU, which could continue to weigh on the market price.

Governance and Transparency Questions

Beyond the technical aspects, the incident has raised questions about Yala’s governance and its ability to handle crises. As a publicly traded company listed on the NYSE, Yalla Group has been expanding into digital finance as part of its broader growth strategy. Analysts note that a failure to restore YU’s peg could undermine user trust and slow adoption of Yalla’s planned financial products for the MENA region.

Some observers have also pointed out that the company has not shared full details about the attack, which may add to transparency concerns. Yalla has issued warnings about third-party fraud but has not specified whether any funds were recovered or if protocol vulnerabilities have been fully patched.

What Comes Next for YU

The YU incident comes at a time when the global stablecoin market is approaching a $300 billion milestone. While established players like Tether (USDT) and USDC dominate the sector, newer projects like YU face challenges in building liquidity and defending their pegs during stress events. With just a few hundred thousand dollars in USDC liquidity on Ethereum, YU may be more vulnerable to price shocks than larger stablecoins with deeper reserves.

Yala’s YU stablecoin fails to restore peg despite immediate response measures and partial price recovery. The company is continuing its security review and protocol improvements, but regaining market confidence will depend on whether YU can return to its $1 value and maintain it over time. For now, both investors and industry watchers remain focused on the outcome.