Stream Finance Loses $93M, Stablecoin Crashes 77%

Stream Finance disclosed late Monday that an external fund manager overseeing its funds lost approximately $93 million in user assets, forcing the protocol to suspend all withdrawals and deposits immediately. The protocol has engaged law firm Perkins Coie to investigate the incident and determine creditor priorities. In a statement on X, Stream Finance wrote: “We are actively withdrawing all liquid assets and expect this process to be completed in the near term. Until we are able to fully assess the scope and causes of the loss, all withdrawals and deposits will be temporarily suspended. Any pending deposits will not be processed at this time.”

The financial impact was immediate and severe. According to blockchain security firm PeckShield, the loss caused Staked Stream USD (xUSD) to depeg soon after the announcement, rapidly plummeting to approximately $0.50. Current CoinGecko data shows xUSD trading at just $0.26, representing a 77% drop over the past 24 hours. The crash extends beyond xUSD to Stream’s other yield-bearing wrapped assets, including xBTC and xETH, which were used as collateral across DeFi lending markets.

DeFi research group Yields and More (YAM) identified nearly $285 million in direct debt exposure across multiple lending protocols, including Euler, Silo, Morpho, and Gearbox. The research highlighted curators TelosC, Elixir, MEV Capital, and Varlamore as among the most exposed creditors. YAM warned: “It’s unclear how this will be settled in between xUSD/xBTC/xETH holders and lenders against these tokens,” indicating significant uncertainty about recovery prospects for affected parties.

The contagion extends beyond direct exposure. YAM’s analysis revealed stablecoins with indirect exposure include Elixir’s deUSD, which had lent 68 million USDC to Stream, representing 65% of its backing, and Treeve’s scUSD through complex rehypothecation chains. Rehypothecation chains occur when collateral gets used multiple times across different lending platforms, creating a cascading effect that amplifies risk throughout the DeFi ecosystem when one component fails.

The collapse comes days after anonymous on-chain trader “Cbb0fe” warned that Stream’s on-chain data showed xUSD’s supporting assets at only approximately $170 million while borrowing reached $530 million, creating a leverage ratio exceeding 4x through the protocol’s “recursive looping” strategy. Stream explained recursive looping as “when a protocol loops its own asset to capture a spread in interest rates” in a recent post defending the approach.

However, controversy erupted when users discovered Stream had been allegedly accumulating an undisclosed “insurance fund” from profits. Pseudonymous user chud.eth accused the team of retaining a “60% undisclosed fee” that wasn’t properly segregated from the strategies it supposedly insured against. Stream responded that the intention “was for these funds to always be used as an insurance fund,” citing internal communications and investor updates, but acknowledged they have not been “as transparent as we should have been on how the insurance fund works.”

Elixir, the protocol’s largest single creditor, tweeted it has “full redemption rights at $1 with Stream for its lending position” and is “beginning the process of unwinding its lending position.” This move suggests Elixir is attempting to minimize its losses, though recovery at full value appears uncertain given the scale of the collapse and the suspension of withdrawals.

Deddy Lavid, co-founder and CEO of blockchain security firm Cyvers, told Decrypt: “The reported $93M Stream Finance incident is another reminder that operational risk extends beyond smart contracts. Even when protocols are secure, external fund managers, off-chain custody, and human oversight remain critical weak points.” This assessment highlights that while DeFi aims to eliminate traditional financial intermediaries, it remains vulnerable to human error and mismanagement, particularly when external fund managers control significant assets.