At approximately 5:35 PM ET on Friday, October 10, the dYdX Chain experienced temporary instability and downtime following unprecedented market volatility. This triggered an unforeseen protocol edge case which the team promptly addressed to bring the chain back online shortly past Midnight. Since then, the dYdX Chain fully recovered - funds have remained secure, and trading operations have been stable.

What Happened

During a period of extreme market volatility, asset prices dropped sharply across most markets. While the exchange software is designed to handle large-scale liquidations and deleveraging events, the unusual conditions triggered a rare edge case.

On dYdX, the community can decide to list markets as cross markets, which share a common collateral pool, or as isolated markets which have their own dedicated collateral pool and insurance fund. Isolated is often more suitable for lower liquidity or more volatile markets, as their isolated collateral pool and insurance fund act to prevent solvency issues from impacting other markets on the protocol.  

In this scenario, the entire open interest of an isolated market was included in a single liquidation trade. This triggered logic to return remaining collateral from the isolated market's pool to the primary collateral pool, with the isolated market’s insurance fund or auto-deleveraging typically covering any shortfall between the liquidation price and the user's bankruptcy price.  

Due to an incorrect order of operations in this process, the collateral pool transfer communicated a negative balance despite the isolated market’s insurance fund having ample capital to cover the deficit. Because the insurance fund could cover the shortfall, auto-deleveraging did not trigger to net out the positions in the isolated market either. This collateral pool transfer failure triggered a protocol-level failsafe mechanism which is intended to force a chain halt to ensure that no additional funds can be minted within the system where there is a net deficit in the collateral pool (though in this instance there was no actual protocol solvency issue). As a result, the chain halted to maintain state integrity. While the chain was halted, all network activity, including oracle price updates and liquidations, was paused.

dYdX Labs’ engineering team quickly developed a patch to resolve the issue, which the community deployed soon after on dYdX Chain. The dYdX Chain resumed normal operation on Saturday, October 11 at 1:41AM ET once a sufficient number of validators upgraded.

Following the restart, some validators had not restarted the oracle sidecar service, which provides price updates for markets. As a result, stale oracle prices persisted briefly until more than 67% of validators resumed posting updates, restoring normal oracle functionality.  

Next Steps

Community trust is core to dYdX, and our commitment is to deliver a world-class consumer experience. We recognize the stress and frustration this caused for affected traders, and we want to assure the community that we take this very seriously. 

Since the event, the community User Support team has been in direct contact with impacted traders across X, Discord, and the dydx.trade Intercom support platform. Impacted traders are invited to submit their claims, which will be reviewed in each case closely. 

We kindly ask all impacted traders to submit their claims by next Friday, October 24th to ensure timely consideration. We expect that the dYdX Chain governance community will consider compensation from the protocol insurance fund, which is currently well-capitalized and is in our view an appropriate source to cover losses resulting from this protocol outage.

Improvements

A key strength of dYdX Chain is its decentralization. Unlike many of its peers, the dYdX Chain backend relies on a diverse network of validators who are unaffiliated with each other or the core project team. 67% voting power is required for any protocol changes, a safeguard that strengthens security and ensures the network operates in the best interest of the community. 

This means no central actor controls the dYdX Chain, but it comes with tradeoffs involving necessary coordination amongst different stakeholders. The bottom line though is that the coordination among the validator set to resolve this outage should have been faster. In addition to fixing the conditions which caused this edge case to trigger a chain halt, we will be working closely with the dYdX Operations subDAO, the dYdX Foundation, validators and other key stakeholders to strengthen incident response procedures and improve real-time coordination during outages.

Our Commitment to the Community

The last major outage on the dYdX Chain occurred 18 months ago, and this recent incident is a rare reminder of the challenges that can arise in volatile markets. We’ve learned valuable lessons from past experiences and continue to take proactive steps to minimize the likelihood of future disruptions. 

We deeply appreciate the community’s patience and support during this outage. Over the past 8 years, dYdX has earned a reputation as a trusted brand in the space and has remained one of the longest-standing builders in DeFi, recently crossing $1.5 trillion in total trading volume. We take your trust seriously - never for granted or lightly. Incidents like this reinforce how important transparency and trust are - core dYdX values that we are dedicated to upholding.

We’re committed to learning from this, improving our processes, and ensuring the dYdX Chain remains a reliable, resilient platform for everyone.

‍

Disclaimer

© 2025 dYdX International Ltd. All rights reserved.

‍dYdX is a decentralised, disintermediated and permissionless protocol, and is not available in the U.S. or to other Restricted Persons. All use of dYdX software is subject to the dYdX Software Terms of Use. 

dYdX International Ltd ("DI"), dYdX Trading Inc. dba dYdX Labs (“dYdX Labs”) and their affiliates do not develop, control or participate in the operation of any component of the dYdX protocol for public use.

To the extent this content describes anticipated features in the open source dYdX software, the implementation of these features in any live deployment of dYdX software will be decided by the relevant deployer community. 

The information provided herein is for general informational purposes only, and DI reserves the right to update, modify, or amend any contents herein, at its sole discretion and without prior notice. Nothing herein should be used or considered as legal, financial, tax, or any other advice, nor as an instruction or invitation to act in any way by anyone.

Engaging in any activity involving crypto-assets (including staking, trading crypto assets and depositing into the MegaVault) is risky due to high volatility. Returns are not guaranteed and may fluctuate over time depending on multiple factors, and you may lose your entire investment, particularly when using leverage. The inclusion of any launchable market on dYdX does not represent endorsement of the projects and all listings are community-driven. You should perform your own research and due diligence before engaging in any activity involving crypto-assets. 

In no event will DI, dYdX Labs or their affiliates be liable for any loss or damage, including without limitation, indirect or consequential loss or damage, arising from or in connection with the use of this content. By continuing to access this content, you agree to the above and accept the possibility of changes in the information provided.