Extremely-leveraged yield farm Stream Finance halted withdrawals on Tuesday, disclosing the lack of $93 million value of belongings held by an “external fund manager.”
The ensuing depeg of Stream’s xUSD (presently down 88%) has led to issues over the well being of an interwoven ecosystem of comparable high-yield vaults within the decentralized finance (DeFi) sector.
The “risk curator” mannequin of high-risk vaults providing yields of 18% on stablecoins, as was the case with Stream’s xUSD, has since come below harsh criticism.
With “curators” taking a price on withdrawals, their goal is to realize larger yields to draw extra deposits, whereas not exposing themselves to threat.
Plenty of these vaults billed themselves as delta-neutral methods. Nonetheless, the customized markets used to create leverage loops on DeFi lending platforms resembling Euler and Morpho, have made unwinding the positions tough in lots of instances.
Reminder: hardcoded oracles imply in an impairment, you’re doubtlessly using it to zero. And doubtlessly even when worth isn’t fairly zero.
Hardcoded oracles = you’re the junior tranche. You’re de facto again of the road within the credit score stack. https://t.co/go2759V5TD
— PaperImperium (@ImperiumPaper) November 6, 2025
Ongoing
1 day in the past
Re7 Labs is accused of holding the funds hostage in illiquid markets, as an alternative of recouping obtainable on-chain liquidity.
1 day in the past
Monarch Lend developer Anton Cheng claims to have written a script for sniping withdrawals from absolutely utilized markets as liquidity turns into obtainable.
8 hours in the past
Lista DAO calls on Re7 and MEV Capital to handle these 100% utilization markets.
7 hours in the past
An replace from Lista DAO seems to indicate that Re7 Labs intends to “facilitate the USDX market liquidation.”
5 hours in the past
The underlying collateral, Stables Labs’ USDX, depegs.
The mud remains to be settling, with a number of markets at 100% utilization, which means lenders are unable to withdraw.
Protos checked out a few of the curators and platforms concerned to see who misplaced out and who (if anybody) got here out on prime.
The losers
After a worrying interval of silence, MEV Capital clarified it had publicity to Steam Finance belongings on “four permissionless lending markets and one vault deployed across three L2 chains.”
The publish lists roughly $34 million value of belongings as “impacted by Stream Finance shortfall.”
Re7 Labs disclosed $14.65 million of publicity to an “isolated xUSD/USDT0 cluster on Plasma” and $12.75 million of publicity to dangerous sdeUSD and deUSD collateral throughout 4 Euler and Morpho markets.
It stresses that mRe7YIELD and mRe7BTC methods are unaffected.
Telos Consilium listed 4 affected vaults and three lending markets. The publish doesn’t quantify publicity, however on Tuesday, analysts Yields and Extra put Telos’ publicity at $124 million.
DeFiLlama TVL knowledge exhibits Telos presently holding 97M xUSD (now value $15 million). Telos has since adjusted borrow charges in order to not pressure a liquidation and lock in losses, hoping debt will as an alternative be paid down.
In line with Silo Finance’s transparency report, direct person deposits account for $15.4 million of publicity to xUSD vaults. Silo claims to be “preparing to take legal action to compel repayment of outstanding loans [by Stream Finance] and to reopen redemptions.”
In the meantime, liquidations stay frozen.
The identical Silo report lists Varlamore’s publicity as over $19 million throughout 5 xUSD vaults and Mithras’ scUSD vault publicity as $2.3 million.
Silo DAO is making ready authorized motion to defend its neighborhood.
We stand by our lenders who’ve been impacted by Stream Finance’s failure to repay standing loans and redeem xUSD and xBTC.
Right here’s what’s occurring and how one can take part 👇
— Silo Labs (@SiloFinance) November 5, 2025
In between
Gauntlet, regardless of claiming no xUSD publicity, was compelled to pause USDC, USDS and USDT Comet markets on Compound Finance, the place it acts as threat supervisor.
The transfer is in response to “a liquidity crunch in [Elixir’s] deUSD and sdeUSD.” New threat parameters had been proposed final week, however have but to go the governance course of.
Elixir’s shock disclosure that it was “the only creditor with… 1-1 [redemption] rights” with Stream undoubtedly exacerbated the frenzy for the exits.
Some consider that Stream additionally probably has creditor rights to externally managed funds, with depositors being final in line.
The permissionless lending platforms (resembling Morpho and Euler) utilized by many of those curators could not have accrued dangerous debt themselves, however the mannequin has acquired criticism for encouraging an obscured yield-vault arms race.
BGD Labs’ Ernesto Boado characterised it as “selling your brand to gamblers for free.”
The push to tackle extra threat, and supply larger returns, has led to funds trapped in overleveraged customized markets as an alternative of orderly liquidation as collateral degrades.
Morpho’s Paul Frambot defended the mannequin, highlighting how different Morpho markets remained unexposed to the shaky collateral. He additionally pointed to decrease outflows on Morpho than elsewhere, although others famous this may need one thing to do with caught funds.
Euler’s Michael Bentley echoed related concepts of threat isolation; “Modular systems don’t promise to prevent risks, but they do help contain them.”
Each Morpho and Euler are eager so as to add third celebration threat scores to vaults to higher inform customers earlier than depositing.
The winners
The one actual winners had been those that “never touched [the] xUSD scam.” However of those that did, some managed to return out comparatively unscathed.
Curators had been fast to level out their lack of publicity, together with Steakhouse, which recognised some durations of illiquidity on its larger yield vaults, Clearstar (largely) and Hyperithm (Stream has since absolutely unwound its mHYPER positions), amongst others.
Neutrl Labs’ $75 million in pre-deposits, held by K3 Capital, truly made $250,000 throughout the ordeal, in keeping with founder Behrin Naidoo.
The true winners, nonetheless, had been these whose mannequin of cautious collateral choice was vindicated. It could be much less thrilling, and supply decrease yields, however due diligence on collateral helps with peace of thoughts.
DeFi stalwarts like OG yield vault Yearn Finance and $50 billion lending big Aave solely supply single digit yields on stablecoins. However their battle-tested code and conservative method have, thus far, prevented extreme blow-ups.
Nonetheless, Aave isn’t above criticism. Its hardcoding of USDe might result in the same state of affairs writ massive ought to Ethena face hassle. And, as Tuesday’s Balancer hack exhibits, even long-established protocols are by no means really protected.
Ethena’s dashboard now contains transparency on accomplice oracle design and collateral availability throughout exchanges and cash markets.
Customers can view which companions have applied resilient pricing infrastructure, in-platform mint & redeem performance, and USDe collateral… pic.twitter.com/usmgEiyYiV
— Ethena Labs (@ethena_labs) November 5, 2025
Yearn contributor Schlagonia, which drew consideration to the approaching state of affairs final week, mirrored at size, observing that “due diligence is the primary slower of growth and therefore gets thrown out first.”
Aave’s Stani Kulechov mentioned that lenders should “believe the markets are sound,” calling using “immutable oracle price feeds, interest curves and parameters” a “bad recipe for lending protocols.”
One in every of Aave’s delegates, Marc Zeller, in contrast the mannequin to a hospital by which “anyone can register as a doctor” and sufferers are left to “figure it out.”
DeFi’s reckoning
Many voices from throughout DeFi lamented such massive quantities of capital ignoring “professionalized… decentralized/autonomous, transparent” choices for the promise of barely larger returns.
The state of affairs drew comparability to Celsius/BlockFi and the ethical hazard of providing yields with no pores and skin within the recreation.
I’m not paying a “vault curator” a administration price to loop my cash in ponzis after which gentle all of it on fireplace. I can try this myself and I’m truly excellent at it
— Gwart (@GwartyGwart) November 4, 2025
Others identified that dangerous, levered-up yield farming doesn’t deserve rewarding, particularly when the consequence is identical.
Mockingly, this appears to be a sentiment with which even Stream Fiannce’s 0xlaw agrees.
