DeFi protocol Stream Finance has suspended deposits and withdrawals after an external fund manager overseeing its funds reported a US$93 million loss.
Key Takeaways:
- Stream Finance paused all user deposits and withdrawals following the report of a $93 million loss by its external fund manager.
- Its stablecoin, Staked Stream USD (XUSD), sharply de-pegged to nearly $0.50 from its $1 target.
- The incident exposes risks in leveraged DeFi strategies and algorithmic-style stablecoins, prompting renewed scrutiny over transparency in the sector.
Stream Finance announced on Sunday that it has frozen deposits and withdrawals after an external fund manager disclosed a $93 million loss in its portfolio. Written on a post on their official X (formerly Twitter) account, the team has engaged legal counsel from Perkins Coie LLP to investigate the situation and said it is in the process of recovering liquid assets “in the near term.”
The protocol, known for its yield-focused decentralized finance (DeFi) model, suffered an abrupt liquidity drain after users reported withdrawal issues. Stream Finance’s native stablecoin, XUSD, which is designed to maintain a $1 peg, began losing its parity ahead of the official pause, plunging to around $0.50 as users rushed to exit their positions.
Stream Finance describes itself as a “tokenized market-neutral fund” that generates returns through lending arbitrage, market-making, and other smart contract-based strategies. However, reports suggest that its “recursive looping” system, where collateral is repeatedly leveraged and redeployed, may have amplified the losses.
Leverage Exposure Behind the Breakdown
Analysts noted that Stream Finance’s architecture relied on extensive leverage. On-chain data indicated that while the protocol held roughly $170 million in deposits, it had borrowed and redeployed over $530 million in assets, creating a leverage ratio of about 4.1x. This setup left little buffer when asset prices fluctuated or liquidity dried up, forcing a rapid unwind.
As confidence deteriorated, liquidity pools became strained, making it increasingly difficult for users to redeem or move funds. The team’s swift decision to halt transactions was an attempt to contain further damage while assessing exposure.
DeFi Market Reaction and Real-Time Price Update
As of this writing (9:30AM UTC), Staked Stream USD (XUSD) is trading at approximately $0.334 according to CoinGecko, showing massive 73.4% price decline crash over the past 24 hours. The same aggregator also shows the token peaked an intraday high of $1.26, and intraday lows of $0.25, which clearly reflect the intense volatility amid the protocol’s significant loss.
Staked Stream USD shows a noticeable price decline amid $93M loss. Source: CoinGecko
The fallout also mirrors previous cases like TerraUSD (UST), where confidence collapsed after complex yield mechanisms failed to sustain peg stability. Analysts say this incident could further dampen investor appetite for high-yield DeFi platforms in the near term.
Industry Experts Warn of Systemic Risks
Industry observers have been quick to highlight the broader implications of Stream Finance’s collapse. Minal Thurkal, head of DeFi Ecosystem Growth at CoinDCX, said the episode underscores the importance of transparency in how DeFi protocols generate yield.
This underscores the critical importance of understanding exactly how protocols generate yield and the significant risks involved in complex DeFi strategies, Thurkal noted. “Stream Finance’s leverage and opacity made it vulnerable to even minor liquidity shocks.
What’s Next for Stream Finance?
Stream Finance has stated that updates will be released as its investigation progresses. The protocol’s immediate priorities include recovering assets, verifying fund exposure, and stabilizing the value of XUSD.
Key questions remain unanswered, whether the $93 million shortfall can be recovered, how the fund manager incurred the loss, and whether depositors will be compensated in full. Market observers are also watching for potential contagion across other leveraged DeFi platforms that use similar recursive lending models.
Summary
Stream Finance paused deposits and withdrawals after an external fund manager reported a $93 million loss, causing XUSD to lose its peg and prompting concerns over highly leveraged DeFi strategies and transparency.
