Stream Finance exploded! Strange loss of 93 million, XUSD depeg collapse.

Stream Finance stated that after external fund managers disclosed approximately 93 million USD in fund asset losses, the company suspended deposits and withdrawals. The team has hired Perkins Coie law firm to investigate the matter. Previously, its staked stablecoin XUSD fell below the 1 USD peg, with a decline of up to 58% within 24 hours, hitting a low of about 0.43 USD.

93 million USD loss shocks the DeFi market

On November 4th, Stream Finance's announcement hit the sentiment of the entire protocol ecosystem. After the external fund manager responsible for overseeing the protocol's funds disclosed a loss of approximately $93 million in fund assets, Stream Finance had to urgently suspend deposits and withdrawals. This figure is considered a significant loss level in DeFi protocols, enough to deal a fatal blow to the entire ecosystem. The source of the $93 million loss has not yet been fully identified, which is the most concerning part.

The team stated that they have hired Keith Miller and Joseph Cutler from Perkins Coie law firm to investigate the matter. Perkins Coie is a well-known international law firm with extensive experience in the cryptocurrency and blockchain sectors. Hiring such a top-tier firm shows that Stream Finance has a clear understanding of the seriousness of the event and is attempting to rebuild market confidence through a professional investigation. However, legal investigations typically take weeks or even months, during which users' funds will remain frozen.

Stream Finance stated: “We are actively withdrawing all liquid assets, and this process is expected to be completed in the near future.” This statement indicates that at least some funds still exist and can be withdrawn. However, the term “liquid assets” suggests that there may still be some assets in a non-liquid state, such as locked in long-term contracts or invested in products that are difficult to quickly cash out. All withdrawal and deposit functions will remain suspended until the extent and cause of the losses are determined. “Currently, any pending deposits will not be processed.” This is an additional blow to users who have initiated deposits but have not yet completed them.

Stream Finance Event Timeline

November 3, 12:45 UTC: The official announcement states that external funds have incurred a loss of 93 million USD, and withdrawals and deposits are suspended.

On the same day from 6 PM to 2 AM the next day: XUSD fell from 1 USD to 0.43 USD

November 4: Engaged Perkins Coie law firm to conduct an investigation.

Current Status: Withdrawals are suspended, liquid assets are being withdrawn, and the cause of the loss is under investigation.

The disclosed information was released around 12:45 PM Coordinated Universal Time, and at the same time, Balancer also revealed a large-scale multi-chain vulnerability. Although these two incidents seem unrelated, the overlap in timing has heightened the anxiety of some users in the DeFi space and accelerated defensive positioning. This phenomenon of “bad news clustering” is referred to as chain panic in market psychology, where investors connect multiple independent events and believe that the entire DeFi ecosystem is facing a systemic crisis.

XUSD Decoupling Disaster: From 1 USD to 0.43 USD

(Source: CoinGecko)

Previously, its staked stablecoin XUSD fell below the 1 USD peg, with a decline of up to 58% within 24 hours. Traders pointed out that due to a drop in confidence, there was a massive sell-off on Arbitrum-based exchanges. In just a few hours, aggressive swap trading of XUSD to USDC on Camelot and Uniswap drove the price of XUSD from 1 USD to 0.92 USD. As Stream Finance confirmed the freezing of deposits and withdrawals during the investigation, buying pressure decreased, leading to further price declines.

From 6 PM (UTC) on November 3rd to 2 AM (UTC) on November 4th, liquidation and arbitrage pressures pushed XUSD to around 0.43 USD. Such a degree of decoupling is disastrous for a stablecoin that claims to be pegged to the US dollar, almost equivalent to project death. The core value of a stablecoin lies in its “stability,” and once the decoupling exceeds 10%, the market usually considers its mechanism to have failed. The 57% decoupling of XUSD means that holders lost more than half of their asset value within a few hours.

On-chain observers interpreted the recent fall as a crisis of trust rather than a confirmed smart contract failure. They pointed out that trading activity on Arbitrum dominated the price fluctuations, and as of the time of writing, there is no direct evidence of a protocol vulnerability. This judgment is extremely important, as it indicates that Stream Finance's technology itself may not have issues; the real problem lies in the failure of external fund management. However, for users, it does not matter whether the loss comes from a technical flaw or mismanagement, as their funds are equally frozen and their value has plummeted.

On-chain observers pointed out that the fall of Stream is a trust-driven sell-off. They noted that the trading volume of Arbitrum is high, but there are no signs of a direct protocol vulnerability. This type of trust-driven sell-off is often harder to control than sell-offs triggered by technical vulnerabilities because it stems from psychological panic rather than rational analysis. When investors lose confidence, even if the protocol announces that the issues have been resolved, they may still choose to continue selling off.

4x Leverage Concerns and External Fund Management Risks

Concerns over the source of funds have intensified on social media. A user on X claimed that on-chain data shows that the supporting assets are approximately 170 million USD, while the outstanding loans are about 530 million USD, indicating a leverage ratio of over 4 times. This data cannot be independently verified in real-time. If this data is accurate, it suggests that Stream Finance's operating model is extremely aggressive. A 4x leverage means that the protocol supports 4 dollars of debt with 1 dollar of assets, which can amplify profits when the market is stable, but poses a fatal risk during market volatility.

Stream Finance will launch in early 2024, focusing on capital-efficient strategies that integrate DeFi and traditional market technologies. Users can deposit USDC into the treasury to receive XUSD, which can generate returns through activities such as lending arbitrage, incentive mining, and hedging market making. When internal capacity is insufficient, the protocol will also collaborate with external management agencies. This model is conceptually similar to asset management in traditional finance, where the protocol entrusts user funds to professional management agencies for investment.

This model helps Stream Finance grow rapidly before 2025, but the reliance on external trading counterparts is now the focus of the investigation. External fund management introduces additional layers of risk. Even if the smart contract itself is secure and bug-free, failures in decision-making, improper operations, or even fraudulent actions by external management agencies can lead to financial losses. The recent loss of 93 million USD is clearly related to external fund managers, but whether it was due to investment failures, operational errors, or more serious misappropriation of funds still needs to be confirmed by the investigation results.

Core Risk Factors of Stream Finance

External Management Risk: Relying on external fund managers increases counterparty risk and operational risk.

High Leverage Risk: Suspected 4x leverage (170 million assets vs 530 million liabilities), market volatility can easily trigger chain liquidations.

Insufficient Transparency: Lack of real-time on-chain verifiability for external fund usage.

Liquidity Mismatch: Some assets may be in a non-liquid state and cannot be quickly liquidated to respond to a run.

Weak Trust Mechanism: Once a problem arises, user confidence quickly collapses, triggering a death spiral.

There is no direct evidence of exploitation, but concerns about leverage are escalating. On-chain observers interpret this fall as a crisis of trust rather than a confirmed failure of smart contracts. This distinction is crucial in the analysis of DeFi incidents. Vulnerabilities in smart contracts can often be fixed through technical means and some funds can be recovered, but losses caused by external management failures are often difficult to recover.

DeFi Black Tuesday Chain Panic Effect

The disclosed information was released around 12:45 PM during the global coordination, and at the same time, Balancer revealed a massive multi-chain vulnerability loss exceeding 116 million USD. Although the incidents involving Stream Finance and Balancer seem unrelated, the overlap in timing has intensified the anxiety among some users in the DeFi space, accelerating defensive positioning. The occurrence of two major DeFi incidents on the same day has been seen by some market participants as “DeFi Black Tuesday.”

In just a few hours, the aggressive swap trading of XUSD to USDC on Camelot and Uniswap pushed the price of XUSD from 1 USD to 0.92 USD. This initial 8% decoupling is already a serious warning sign, but as Stream Finance confirmed the freezing of deposits and withdrawals during the investigation, buying pressure completely vanished, and the price entered free fall. From 6 PM (UTC) on November 3 to 2 AM (UTC) on November 4, liquidation and arbitrage pressure pushed XUSD down to about 0.43 USD, with a 57% drop within 8 hours.

The speed and depth of this panic selling reveal the vulnerability of DeFi stablecoins during a crisis of trust. When users doubt that the protocol can redeem, the rational choice is to sell immediately, even if the price has already deviated significantly from the pegged value. This prisoner's dilemma-type game leads to the collapse due to a bank run, even if the protocol is actually still solvent. The case of XUSD once again proves that the stability of stablecoins depends not only on asset collateralization ratios but also on user confidence. Once confidence collapses, no collateralization ratio can prevent decoupling.

For the DeFi industry, the Stream Finance incident provides a painful lesson. While external fund management can improve capital efficiency, it introduces risks that are difficult to control through smart contracts. High leverage strategies can amplify returns in a bull market, but they are a ticking time bomb in a volatile market. Transparency and immediate verifiability are the core advantages of DeFi, and once a protocol hands over funds to opaque external management entities, this advantage is lost. Future DeFi protocols must find a better balance between capital efficiency and risk control to avoid similar disasters.