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In early November 2025, Stream Finance saw a collapse like none other. In this article we explore the what, why and how of the collapse.
Author: Sahil Thakur
In early November 2025, Stream Finance, a DeFi platform, saw a collapse like none other . The implosion happened quickly and rattled the broader crypto ecosystem. An external fund manager made a critical error. That mistake led to the loss of $93 million in platform assets. The damage caused user accounts to freeze, triggered the depegging of a stablecoin, and spread disruption across several other DeFi protocols.
As panic spread, Stream Finance blocked all user withdrawals. Its stablecoin, Staked Stream USD (XUSD), crashed from its $1 peg to just a few cents. The crisis didn’t end there. Elixir Finance, which operated a synthetic stablecoin called deUSD, also failed. Since Elixir had deep links to Stream, it shut down completely. These events exposed the deep systemic risks that exist in interconnected DeFi platforms.
This report breaks down the full story. It walks through how the stream finance collapse unfolded, details the timeline of announcements, examines the status of locked user funds, and highlights how Stream and its partners responded. The report also explores wider consequences. These include Elixir’s failure and a narrowly avoided chain reaction across DeFi. Finally, it looks ahead to potential recovery paths and what lies in store for Stream, Elixir, and the broader DeFi space.
The collapse began with a $93 million loss. A fund manager working outside of Stream mishandled assets and caused the damage. On November 3, the Stream team disclosed the loss in a post on X . They explained that a third-party investment manager had mismanaged funds. Although the funds disappeared, the cause wasn’t a flaw in Stream’s smart contracts. Instead, the external strategy failed, or someone exploited it.
At the same time, Balancer, another major DeFi protocol, suffered a massive hack. That exploit drained over $100 million. Analysts quickly connected the two events. DeFi researcher Omer Goldberg pointed out that XUSD began to lose its peg soon after the Balancer exploit on October 30. It now appears likely that the external manager had invested Stream’s capital in Balancer or similar yield protocols. When the Balancer contracts were hacked, those investments were wiped out.
This loss revealed a bigger issue within Stream. The platform ran a complex, highly leveraged yield strategy known as “recursive looping.” Users would deposit base assets such as stablecoins, BTC, or ETH. In return, they received synthetic tokens like XUSD, xBTC, or xETH. These synthetic tokens could be used as collateral again or redeposited into the system. This process created compounding leverage.
Stream’s model worked in calm conditions. But it was risky. Just before the collapse, data showed that Stream held only $170 million in real assets. At the same time, it had issued $530 million in synthetic tokens. That meant a leverage ratio greater than 4 to 1. Even a small shock could unravel the entire system.
The $93 million loss delivered that shock. Immediately after the news, XUSD began to depeg. Blockchain security firm PeckShield tracked the stablecoin falling to around $0.50 within hours. As fear grew, users rushed to sell. The price dropped further, reaching $0.24 on some markets. At its worst, XUSD fell to just $0.10. In less than a day, more than 90% of its value disappeared. This collapse wiped out nearly $500 million in market cap.
Unlike the Terra/UST crash, this wasn’t a traditional algorithmic death spiral. Arbitrage mechanics didn’t drive the loss. Instead, real collateral vanished, and trust evaporated. XUSD was designed as an over-collateralized synthetic stablecoin. But when users realized a major portion of that collateral was gone, confidence broke down.
Security audits found no flaws in Stream’s smart contracts. Analysts didn’t blame technical errors. They called it a crisis of confidence. The market collapse happened because users no longer believed in the reserves or solvency of the system.
Stream’s lack of transparency made the situation worse. Just before the collapse, users noticed differences between Stream’s reported total value locked and data from analytics site DeFiLlama. The Stream team explained the difference. They claimed about $160 million came from user deposits, while the rest, around $520 million – came from leveraged positions.
More damaging details soon emerged. Stream had been diverting part of its yield into a hidden “insurance fund.” Users didn’t know this at the time. Reports alleged that the team had skimmed as much as 60% of profits to build this fund. The team later admitted that they hadn’t disclosed this practice clearly. They defended the fund as a safety net for emergencies. But the lack of transparency only deepened the collapse in trust.
A clear timeline helps explain how the crisis unfolded and how each piece of information came to light.
Balancer, a major DeFi liquidity protocol, suffers a hack that drains over $110 million. Analysts later connect this event to Stream’s issues. One of Stream’s external fund managers likely had exposure to Balancer’s liquidity pools.
Users start noticing inconsistencies in Stream Finance’s asset reporting. During a community call on X (Twitter), the Stream team responds. They explain the gap between user deposits ($160 million) and total deployed assets ($520 million). The explanation highlights Stream’s recursive leveraging model. However, it also confirms the platform’s heavy reliance on leverage.
XUSD begins slipping below $1 on secondary markets. By late evening, it falls below $0.90. This drop alarms users since stablecoins are supposed to hold their peg. Although no official statement comes from Stream, concern grows rapidly on social media. A pseudonymous on-chain analyst, using the handle cbb0fe, sounds the alarm. He reports that Stream has only $170 million in backing against $530 million in liabilities. His warning points to severe over-leverage.
Stream publishes a formal announcement on X. The team confirms that an external fund manager lost $93 million in platform funds. In response, they freeze all deposits and withdrawals. The announcement also reveals that the team has hired law firm Perkins Coie LLP to investigate. Stream claims it is working to recover liquid assets and protect users. They stress their commitment to transparency and strong governance. However, many users criticize the timing. They feel Stream waited too long and only reacted after the stablecoin depegged.
Following the announcement, XUSD crashes. It drops below $0.50 within hours. By the end of the day, it trades near $0.24, a 76% loss. At this point, the peg appears broken beyond recovery. Confidence disappears, and liquidity remains frozen. Arbitrageurs cannot step in. Other synthetic assets like xBTC and xETH also begin to collapse. Since Stream used them in recursive strategies, markets for those tokens seize up as well.
Focus shifts to other protocols holding Stream-related assets. A DeFi research group, Yields And More (YAM), publishes an analysis of exposure across the ecosystem. They find that $285 million in loans and stablecoin positions are tied to Stream’s synthetic assets. Platforms like Euler, Morpho, Silo, Gearbox, and Compound accepted xUSD, xBTC, or xETH as collateral or debt.
The report reveals major creditors. Telos Capital holds $123 million in exposure. Elixir is exposed to $68 million. Others such as MEV Capital, Re7 Labs, and Varlamore also face large losses. As a result, fears of cascading defaults rise. If these synthetic assets are worthless, the loans they backed are now undercollateralized.
Stream confirms that all user activity remains suspended. The team says it is finalizing the withdrawal of remaining liquid assets. They aim to prevent further losses. Perkins Coie assigns senior attorneys to lead the investigation. Stream signals that it considers the issue serious. They are investigating whether the fund manager was negligent or if a hack occurred. For now, Stream refuses to name the fund manager or explain how the loss happened.
Attention shifts to Elixir Finance. The project relied heavily on Stream’s assets. As fears escalate, Elixir’s stablecoin, deUSD, starts collapsing. It quickly loses over 90% of its value. As redemptions begin, the market realizes that deUSD no longer has sufficient backing.
On November 6, Elixir announces it will shut down deUSD entirely. The project abandons its synthetic stablecoin effort. Meanwhile, lending platforms take emergency action. Compound and others freeze markets for xUSD, deUSD, and related assets. These quick moves prevent a broader meltdown. Analysts credit the Compound team with helping avoid a disaster on the scale of Terra/UST in 2022.
By the end of the week, analysts call it DeFi’s darkest stretch since 2022. Around $1 billion in capital exits DeFi yield platforms. This marks the largest outflow since the Terra crash. The collapse sparks debate across the industry. Critics question the viability of synthetic and crypto-backed stablecoins. Many also criticize the use of high leverage in yield strategies.
Regulators and traditional finance observers take notice. Some argue that the event shows the urgent need for tighter oversight of stablecoin products and DeFi practices. Industry leaders call for better risk management and clearer transparency across protocols.
When Stream Finance halted operations on November 3, users suddenly lost access to their funds. The platform froze all deposits and withdrawals without a clear timeline for recovery. As a result, more than $160 million in user deposits became trapped in various yield vaults.
The team explained that it was pulling back all remaining liquid assets into custody. They aimed to prevent further losses and build a reserve that could be used to repay users or creditors later. These “liquid assets” referred to funds that were not lost in the $93 million incident. In other words, they represented the portion of Stream’s $520 million deployed capital that remained untouched in unaffected strategies. For now, these assets sit idle, offering users no immediate recourse.
One of the most pressing questions concerns how Stream will divide these losses. Many different stakeholders are involved, including holders of XUSD, xBTC, and xETH, as well as lenders who accepted these assets as collateral. The collapse created a complicated web of financial claims. According to CoinDesk, no one knows exactly how settlements will be structured. Some users simply held xAssets on Stream, while others used those tokens as collateral elsewhere. So who takes the hit? Will lenders absorb losses by liquidating worthless collateral? Or will Stream compensate users directly? These questions remain unanswered.
To navigate this legal complexity, Stream hired Perkins Coie LLP, a law firm with experience in crypto and financial investigations. This move suggests that Stream might follow a process similar to bankruptcy proceedings in traditional finance. The legal team has two main responsibilities. First, they will determine how the loss occurred and whether Stream has legal grounds to recover the funds, possibly through claims of negligence or insurance. Second, they will guide the platform through liability assessments and creditor settlements.
Stream emphasized that hiring Perkins Coie reflects its commitment to transparency and sound governance. Attorneys Keith Miller and Joseph Cutler, both experienced in crypto investigations, are leading the inquiry. The company also promised to release periodic updates during the investigation.
For now, users remain locked out of their funds. Those who deposited money into Stream cannot withdraw it. Users who held XUSD are unable to redeem it for dollars since the peg is broken and the platform has suspended operations. Even pending deposits got stuck. Anyone who tried to transfer assets around the time of the freeze now finds those funds in limbo. As it stands, users have effectively become unsecured creditors waiting for access to what remains.
One potential source of relief lies in the insurance fund. As previously revealed, Stream had been diverting a portion of yield profits into a hidden reserve. The team described this reserve as an “insurance fund” intended for emergency use. If the fund is still intact and accessible, it could soften the impact. However, Stream has not disclosed its size. Without knowing how large it is, no one can say how much it might help.
The distribution of losses is also tangled due to the platform’s structure. For example, a user who deposited USDC and minted XUSD might see themselves as a lender. Meanwhile, someone else may have borrowed that USDC using XUSD as collateral through another protocol. Now that XUSD has collapsed in value, the borrower cannot repay their debt. As a result, the lender also loses money.
YAM’s analysis estimated that total loans secured by Stream-linked tokens exceeded $280 million. Some of these loans involve Stream directly, while others rely on third-party platforms. Stream has said it cannot make repayment decisions yet. It must first wait for legal clarity on how to allocate responsibility. In short, the company cannot decide unilaterally who will recover what.
For most users, this creates a frustrating and uncertain wait. If the $93 million is completely gone—whether lost to a hack or to mismanagement—users will likely recover only a portion of their funds. Their exact recovery depends on the size of the remaining asset pool and the total amount of outstanding claims. For instance, if Stream recovers $400 million out of $520 million but owes $520 million to creditors, users might receive roughly 75 cents on the dollar. However, these numbers remain speculative. Some estimates put total liabilities closer to $285 million, while the actual amount of recoverable assets is still unclear.
Stream’s decision to freeze all transactions may have prevented a bank run. If it had allowed withdrawals to continue, early actors could have emptied the reserves, leaving later users with nothing. By locking everyone out at once, the platform ensured that all stakeholders would face the crisis equally. But this action also left every user in limbo.
The possibility of recovery still exists, though it remains slim. If Stream’s legal team discovers that the loss came from a hack, they may attempt to recover stolen assets. However, past crypto hacks show that recovering funds is difficult and often yields little. If poor investment decisions or negligence caused the loss, recovery may depend on legal actions or insurance claims. In that case, attorneys would need to prove wrongdoing to unlock compensation.
At this stage, most users have come to terms with the possibility of major losses. Many have already mentally written off part of their deposits. Whether they regain even a fraction depends entirely on what investigators uncover and how the remaining assets get distributed.
As the crisis unfolded rapidly, Stream Finance and its partners took urgent steps to limit the fallout. The following outlines the major actions taken in the immediate aftermath.
On November 3, Stream Finance made the critical decision to halt all user activity. They suspended deposits, withdrawals, and new positions across the platform. This freeze, though drastic, aimed to prevent a first-come-first-serve rush that could have drained remaining assets for a few early users. By pausing all transactions, the team placed everyone on equal footing. This gave them time to assess the situation without the platform bleeding more value. It also stopped the creation of new loans tied to XUSD and other synthetic assets.
Immediately after the freeze, the team began withdrawing funds from deployed strategies. They moved assets into more secure wallets, likely using cold storage or multisig controls. This process included unwinding yield positions wherever possible. Their goal was twofold. First, they wanted to protect these assets from additional market volatility. Second, they needed to build a clear picture of what remained available for recovery or repayment. The team stated that the withdrawal process would conclude shortly after the announcement.
Stream responded quickly with public announcements, using platforms like X and possibly Discord or their blog. They confirmed the $93 million loss and the operational freeze. They also revealed that they had retained the law firm Perkins Coie to conduct an independent investigation.
However, their communication also left many gaps. The team refused to identify the external fund manager responsible for the loss or explain how exactly it happened. This omission frustrated many users. Stream likely followed legal advice by withholding such details until they gather full evidence. In the absence of specifics, the team focused their messaging on a commitment to transparency going forward. One post read, “Our decision to retain Perkins Coie LLP reflects Stream’s unwavering commitment to transparency and robust corporate governance.” For many affected users, though, this statement offered little comfort while funds remained frozen.
Stream took a significant step by involving Perkins Coie LLP. The firm’s role is to lead a comprehensive, independent investigation into the cause of the incident. Their attorneys will review transaction histories, interview team members, and potentially cooperate with law enforcement if a hack occurred.
This legal move signaled that Stream was preparing to take action. They may pursue legal claims against the fund manager or other parties, depending on what the investigation uncovers. It also served a strategic purpose. By involving an external legal authority, Stream hoped to reassure users and partners that the truth would come out, and that the company would pursue all viable paths toward accountability and recovery.
Inside the organization, Stream’s team began to confront its own failings. They publicly admitted to a lack of transparency regarding the so-called insurance fund. In response to criticisms from users like chud.eth, who flagged hidden fee practices, Stream acknowledged the missteps. Owning up to these issues opened a narrow path toward rebuilding trust, provided the team survives the crisis.
At the same time, Stream likely paused all product development. Their engineering and operational teams probably redirected all resources toward crisis response. This likely included tasks such as scripting asset withdrawals, coordinating with investigators, and collecting relevant data.
Because Stream’s synthetic assets like xUSD, xBTC, and xETH were widely integrated, the team reached out to affected DeFi protocols. Platforms such as Compound acted quickly, freezing or pausing markets that involved Stream’s assets. Although Stream may not have coordinated directly with every partner, their actions appeared informed by mutual awareness.
For instance, Compound moved to shut down lending markets tied to xUSD. This prevented users from supplying more collateral or opening new loans. It also reduced the risk of forced liquidations, which could have worsened price drops. Other protocols, such as Morpho and Euler, followed suit. Morpho mirrored Compound’s changes. Euler, being an isolated lending system, likely froze pools and set collateral factors for affected assets to zero. These decisions prevented further contagion across DeFi.
Stream’s team likely shared relevant data or at least supported these defensive actions behind the scenes.
Stream faced immediate backlash across crypto social channels. DeFi analysts on X (formerly Twitter) dissected the collapse in real time. Groups like Yields And More (YAM) published detailed reports on the exposure. Security researchers such as PeckShield flagged the stablecoin’s depeg and provided on-chain analysis.
Community responses varied. Affected users expressed anger and demanded answers. Observers voiced concern over broader systemic risks in DeFi. Some developers and longtime DeFi participants encouraged calm. They called for cooperative solutions that could protect users from further loss. Notably, Elixir Finance coordinated with multiple protocols, including Compound and Euler, to offer redemptions for deUSD holders. This collaboration showed that parts of the ecosystem were working to protect user interests during the crisis.
Outside Stream, developers at other protocols played a critical role. On platforms like Compound, teams pushed emergency updates or initiated governance proposals to freeze markets. Although decentralized protocols often lack rapid-response powers, many still hold emergency keys or use fast-track voting for urgent situations.
These emergency actions made a difference. Quick market freezes helped prevent a full-scale liquidation event that could have mirrored the Terra/UST disaster. In the future, this experience may push developers to build better circuit-breakers, such as automatic market halts when an asset’s price falls sharply.
Several DeFi leaders weighed in as the situation developed. For example, Guy Young, founder of stablecoin project Ethena (issuer of USDe), offered commentary. He highlighted Stream’s over-reliance on a single fund manager and used the moment to contrast his own project’s approach. These public analyses contributed to a broader industry post-mortem, as builders and investors alike searched for lessons from the collapse.
The collapse of Stream Finance sent shockwaves far beyond its platform. It revealed just how interconnected and fragile the decentralized finance (DeFi) ecosystem has become. Here are the major consequences that followed:
Stream’s synthetic tokens – XUSD, xBTC, and xETH, served as collateral in multiple lending platforms. When XUSD lost its value, loans backed by these tokens instantly became undercollateralized. Platforms such as Morpho, Euler, and Silo saw lending pools spiral into trouble. Liquidation mechanisms failed because the collateral had lost most of its worth.
As a result, many protocols were left holding bad debt. Depositors lost money. Borrowers stopped repaying, as their collateral no longer covered their obligations. Liquidity in affected pools dried up. Some pools even faced negative interest rates. These losses echoed past disasters like Celsius and Terra. However, this time, the damage spread across several smaller protocols rather than one central platform.
Compound Finance responded quickly by shutting down markets linked to xUSD and similar assets. This decision stopped a broader chain reaction. If Compound had allowed trading to continue, arbitrage bots might have drained reserves, causing widespread liquidation across the platform.
This event showed the importance of having procedures in place to pause volatile markets. Other protocols will likely review their own emergency safeguards after witnessing how close the system came to collapse. The developers’ fast action on Compound became a case study in crisis containment.
Fear spread quickly after Stream’s fall. Within a week, investors withdrew approximately $1 billion from yield-bearing stablecoin platforms. According to data from PANews, users fled platforms that resembled Stream—even if those platforms had no direct connection to the crisis.
This massive outflow reflected shaken confidence. Investors preferred safety over yield. The week marked the largest capital flight since Terra’s collapse in 2022. Projects like Telos Capital, Treeve’s scUSD, and other complex stablecoin platforms likely came under scrutiny as users evaluated their own exposure.
Many in the industry compared the Stream collapse to Terra’s infamous implosion. While Stream involved smaller sums, the structural failure was similar. In both cases, a stablecoin depeg triggered widespread panic and systemic risk.
Commentators warned that if Compound had failed to contain the crisis, the result might have rivaled or surpassed Terra’s impact. Fortunately, swift actions stopped that outcome. Still, the fear was real. The event exposed how deeply DeFi platforms depend on each other—and how quickly that dependence can become a liability.
Stream’s failure also revealed deeper flaws in how DeFi systems are designed. The platform combined recursive leverage, third-party fund management, and cross-protocol collateral—all within a black-box structure. This created massive, opaque risks.
Critics noted that many DeFi yield products operate entirely within crypto and serve no purpose beyond trading and arbitrage. When these “nested DeFi dolls” break, they take multiple protocols down with them. This raised new questions about whether these complex systems solve real problems or simply amplify systemic risk.
The collapse reignited debate around what kinds of stablecoins should exist. Investors and analysts voiced renewed support for fiat-backed stablecoins like USDC and USDT. These assets, backed by reserves, offer more stability during market stress.
In contrast, synthetic and algorithmic stablecoins like XUSD or deUSD depend on volatile crypto collateral. This design introduces circular risk. Once confidence erodes, the peg collapses. PANews categorized these as “Type II” stablecoins—more experimental, and far more fragile.
The community now calls for more robust stablecoin models. Some advocate for real-world asset backing. Others support over-collateralization with transparent custody, similar to how DAI evolved. There are also proposals to include circuit breakers that pause minting or trading during extreme volatility.
Although XUSD and deUSD were not used in traditional commerce, the failure still caught the attention of regulators. Policymakers may now cite Stream’s collapse in arguments for stronger stablecoin laws or oversight frameworks.
Meanwhile, market trust has eroded. Users are more likely to demand proof of reserves, regular audits, and clear disclosures. They may now prefer platforms with insurance, third-party verification, or regulatory alignment. The appetite for unregulated, high-yield experiments appears to be shrinking.
Elixir Finance suffered heavily. Its stablecoin, deUSD, collapsed completely. Although Elixir acted quickly to shut it down, the damage to its reputation remains. Investors and users lost faith in the project’s risk management.
Other projects, such as Treeve’s scUSD, now face skepticism. Observers wonder if they could be next if one of their dependencies fails. Meanwhile, Stream’s largest creditors, including Telos Capital, may soon make public statements. Some will absorb the loss. Others might seek legal remedies if they believe the damage stemmed from negligence.
The crisis also mobilized the DeFi community. Independent analysts began reviewing other protocols to find similar hidden risks. Groups like YAM published in-depth reports to help users understand their exposure.
This wave of community-led oversight may lead to permanent change. Going forward, protocols will likely face more pressure to offer real-time dashboards, on-chain audits, and full transparency. If Stream had communicated its leverage ratios or disclosed the insurance fund earlier, the fallout might have been less severe.
The Stream Finance collapse reminded the community of a hard truth. Decentralization doesn’t mean systems are safe by default. High yields come with high, often hidden, risks. Without transparency and smart risk controls, DeFi remains vulnerable to cascading failures.
Many now call for the industry to refocus. Stablecoins should serve practical purposes like payments and savings. Complex, leveraged systems that exist only to chase yield may no longer fit that mission. This moment could be the catalyst that leads to better governance, stronger safeguards, and more resilient DeFi protocols.
