The Stream Finance collapse resulted from a $93 million loss by an external fund manager, causing its stablecoin xUSD to depeg and crash 77%, highlighting DeFi vulnerabilities in fund management and custody beyond smart contracts.
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External fund manager oversight failure: $93 million in user assets lost, leading to immediate protocol suspension of withdrawals and deposits.
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Stablecoin depeg: xUSD plummeted from $1 to $0.26, as reported by CoinGecko data.
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Broader DeFi exposure: Nearly $285 million in debt across protocols like Euler and Morpho, with indirect risks to other stablecoins including deUSD.
Explore the Stream Finance collapse: $93M loss exposes DeFi risks in fund management. Learn impacts on xUSD and lending protocols. Stay informed on crypto stability—subscribe for updates today. (142 characters)
What Caused the Stream Finance Collapse?
The Stream Finance collapse stemmed from an external fund manager’s loss of approximately $93 million in user assets, as disclosed by the protocol on November 4, 2025. This incident triggered a sharp depeg in its flagship stablecoin, Staked Stream USD (xUSD), which fell to $0.26—a 77% drop—while exposing $285 million in debt across interconnected DeFi lending platforms. Stream Finance has halted all withdrawals and deposits pending a full investigation led by law firm Perkins Coie.
How Did the xUSD Depeg Unfold in the Stream Finance Incident?
The depeg of xUSD occurred rapidly after the $93 million loss announcement, with the token dropping to around $0.50 initially, according to blockchain security firm PeckShield’s monitoring. By the latest reports, CoinGecko indicated xUSD trading at $0.26, reflecting severe market pressure from the liquidity crisis. DeFi research group Yields and More (YAM) detailed nearly $285 million in direct debt exposure involving protocols such as Euler, Silo, Morpho, and Gearbox, where curators like TelosC, Elixir, MEV Capital, and Varlamore hold significant positions as creditors.
Indirect exposures compound the risks, with stablecoins like Elixir’s deUSD having lent 68 million USDC to Stream—comprising 65% of its backing—and Treeve’s scUSD entangled in rehypothecation chains. These chains involve collateral reused across platforms, amplifying potential cascading failures. Prior warnings from an anonymous on-chain trader, known as Cbb0fe, highlighted discrepancies in Stream’s assets: only $170 million supporting $530 million in borrowing, driven by a 4x leverage ratio through recursive looping strategies.
Stream Finance described recursive looping as a method to capture interest rate spreads by reinvesting its own assets. However, user scrutiny revealed an undisclosed insurance fund accumulated from 60% of profits, which pseudonymous user chud.eth claimed was not properly segregated. Stream acknowledged transparency shortcomings but affirmed the fund’s intended role as insurance, supported by internal communications and investor updates. Elixir, the largest creditor, asserted full redemption rights at $1 and initiated unwinding its position.
“The reported $93M Stream Finance incident is another reminder that operational risk extends beyond smart contracts,” stated Deddy Lavid, co-founder and CEO of blockchain security firm Cyvers, in comments to COINOTAG. “Even when protocols are secure, external fund managers, off-chain custody, and human oversight remain critical weak points.” This perspective underscores the incident’s broader implications for DeFi’s reliance on third-party operations.
Frequently Asked Questions
What Are the Immediate Impacts of the Stream Finance Collapse on Users?
In the wake of the Stream Finance collapse, all withdrawals and deposits have been suspended until the full scope of the $93 million loss is assessed. Pending deposits will not process, and xUSD holders face uncertainty in redemptions amid the 77% price crash. The protocol is withdrawing liquid assets and prioritizing creditor claims through Perkins Coie, expected to complete soon.
Why Is the Stream Finance Collapse a Warning for DeFi Lending Protocols?
The Stream Finance collapse highlights how interconnected DeFi lending ecosystems can amplify losses through rehypothecation and leverage, as seen with $285 million in exposed debt across Euler, Morpho, and others. It stresses the need for robust oversight of external managers and transparent risk strategies to prevent similar depegs and liquidity crises in stablecoins like xUSD.
Key Takeaways
- Operational Risks in DeFi: The Stream Finance collapse demonstrates that vulnerabilities extend to fund managers and custody, not just code, as echoed by Cyvers CEO Deddy Lavid.
- Interconnected Exposures: With $285 million in debt across multiple protocols, the incident reveals cascading risks in lending markets involving xUSD, xBTC, and xETH as collateral.
- Transparency Imperative: Undisclosed insurance funds and leverage strategies like recursive looping underscore the need for clearer disclosures to build user trust in DeFi platforms.
Conclusion
The Stream Finance collapse, marked by the $93 million loss and xUSD depeg, serves as a stark reminder of DeFi’s operational risks in fund management and interconnected lending. As investigations by Perkins Coie proceed, the focus remains on asset recovery and creditor protections amid broader stablecoin exposures. Moving forward, enhanced transparency and risk assessments will be essential for DeFi’s resilience—monitor developments closely to safeguard investments in this evolving space.
