Stream Finance Freezes All Withdrawals After $93 Million Loss Sparks Stablecoin Collapse

Stream Finance Halts Deposits and Withdrawals After $93 Million Loss Disclosed

DeFi protocol Stream Finance has temporarily suspended all deposits and withdrawals following the disclosure of a $93 million loss by an external fund manager overseeing its assets.

The team announced on X that it is actively withdrawing all remaining liquid assets and expects the process to be completed shortly, while retaining legal experts Keith Miller and Joseph Cutler from Perkins Coie LLP to lead an investigation.

Stablecoin XUSD Plummets Amid Crisis

The revelation sent shockwaves through Stream Finance’s ecosystem, with its staked stablecoin, Staked Stream USD (XUSD), breaking its $1 peg.

According to CoinGecko, the token fell as low as $0.3 on 4 November before recovering slightly to around $0.305, representing a market capitalisation of $62 million.

Over the past month, XUSD had consistently traded near $1.26, peaking at $1.29 on 10 October.

Traders on Arbitrum-based platforms like Camelot and Uniswap drove heavy selling, pushing XUSD from $1 to $0.92 within hours of the announcement.

By the early hours of 4 November, liquidation and arbitrage pressure saw the price drop to roughly $0.43.

Peckshield had earlier warned of XUSD’s depegging, signalling early signs of instability.

How Did This Happen and Who Bears Responsibility

Stream Finance explained that the loss originated from an external fund manager handling the protocol’s assets.

The team stated,

“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 during the investigation.

On-chain analysts have suggested that the market reaction reflected a trust shock rather than a confirmed smart contract exploit.

Social media users highlighted potential leverage concerns, noting that $170 million in supporting assets were reportedly backing $530 million in outstanding loans, implying leverage above four times—though these figures could not be independently verified in real time.

DeFi Model Reliance on External Managers Raises Questions

Stream Finance launched in early 2024, offering capital-efficient strategies that mix DeFi and traditional market techniques.

Users deposit USDC into vaults to receive XUSD, which targets yield through lending arbitrage, incentive farming, and hedged market-making.

While external managers were engaged to extend capacity, reliance on them has now become a central issue in the current investigation.

Liquidity and Value Locked Take a Hit

The total value locked (TVL) in Stream Finance dropped from nearly $204 million at the end of October to approximately $98 million, according to DeFi Llama.

The protocol’s collapse in confidence coincided with broader market jitters, as a separate multichain exploit at Balancer on 3 November intensified fears across interconnected DeFi platforms.

Implications for Stablecoins and DeFi Markets

The XUSD depegging highlights the fragility of algorithmic stablecoins and raises questions about the broader trust in DeFi-backed assets.

Observers suggest this may accelerate interest in fully collateralised or hybrid stablecoin models capable of withstanding extreme market conditions.

The incident also draws attention to potential contagion risks in DeFi lending markets and the need for clearer transparency and risk management practices.

Legal Investigation and Next Steps

Stream Finance has tasked Perkins Coie LLP to conduct a full review of the incident.

The platform has committed to providing periodic updates while assessing the scope and causes of the $93 million loss.

The team assured,

“We are actively withdrawing all liquid assets and expect this process to be completed in the near term.”

As the investigation unfolds, the incident is likely to fuel discussions on regulatory oversight, third-party risk management, and the stability of algorithmic stablecoins in the DeFi sector.