Stream Finance has suspended deposits and withdrawals due to a huge loss of 93 million USD, triggering a Crisis of Confidence in Decentralized Finance.

A DeFi newcomer that had once attracted capital favor suddenly suspended its services after an external fund manager disclosed a massive loss of $93 million, causing its stablecoin XUSD to quickly depeg by more than 60%, revealing the risk concerns beneath the prosperous facade of Decentralized Finance.

The DeFi derivatives protocol Stream Finance suddenly announced on November 3 that an external fund manager disclosed that the Stream fund assets it managed suffered a massive loss of approximately 93 million USD.

As soon as the news broke, the market was in an uproar. Stream Finance immediately took emergency measures, announced the suspension of all deposit and withdrawal services, and hired Keith Miller and Joseph Cutler from the law firm Perkins Coie LLP to lead a comprehensive investigation.

At the same time, its stablecoin Staked Stream USD (XUSD) rapidly depegged by over 60%, falling from $1 to $0.5504, triggering panic selling among holders.

01 Event Overview: $93 million Loss and Emergency Response

On November 3rd, Stream Finance announced on social media platform X, marking the beginning of this crisis. The announcement revealed that the external fund manager responsible for overseeing the Stream fund disclosed approximately $93 million in asset losses.

In the face of a sudden massive loss, Stream Finance quickly activated its emergency mechanism:

• Comprehensive suspension of services: Immediately halt all deposit and withdrawal operations, pending further assessment of the extent and causes of the losses.
• Launch Investigation: Appoint Keith Miller and Joseph Cutler from Perkins Coie LLP to conduct a comprehensive investigation into the incident.
• Asset Preservation: Urgently withdraw all liquid assets to minimize further losses as much as possible.

Stream Finance promised in the announcement to regularly update the progress of the events, but has not yet provided a clear explanation regarding the specific reasons and timeline for the losses.

02 Project Background: From Darling of Capital to the Brink of Crisis

Stream Finance is not an unknown entity. In April 2024, this Ethereum-based crypto derivatives platform had its moment of glory, successfully securing $1.5 million in seed funding.

The round of financing was led by Polychain Capital, with participation from several angel investors, demonstrating the capital market's recognition of its prospects.

Stream Finance was co-founded by Diogenes Casares and Solal Afota, aiming to create a decentralized perpetual contract exchange to challenge industry giants like dYdX.

In the vision of the founding team, Stream Finance focuses on optimizing funding rates, viewing them as a more important competitive factor than swap fees.

Even in the testing phase, Stream Finance has shown strong growth momentum, with a Total Value Locked (TVL) reaching $5 million, successfully standing out from the beta testing phase.

03 Chain Reaction: XUSD stablecoin seriously depegged

The most direct manifestation of the Stream Finance crisis is the severe de-pegging of its stablecoin XUSD.

Market data shows that XUSD started to experience severe decoupling on November 4, dropping approximately 27.2% within 24 hours.

Subsequently, the situation further deteriorated, with the degree of de-pegging expanding to 62.1%, and the price briefly dropping to 0.5504 USD, far below the expected peg level of 1 USD for stablecoins.

The blockchain security company PeckShield had previously issued a warning, indicating that Staked Stream USD (XUSD) had depegged by about 23%, but at that time the market had not yet realized the severity of the issue.

The severe depegging of XUSD has not only affected the asset value of holders but has also raised questions about the design mechanism of collateralized stablecoins in the Decentralized Finance field.

04 Market Lessons: Concentrated Exposure to Risks in the DeFi Field

The collapse of Stream Finance has provided multiple lessons for the entire Decentralized Finance industry:

centralized risk

Ironically, a decentralized finance protocol is caught in a crisis due to the centralized decisions of external fund managers. This exposes the prevalent “centralization paradox” in the current DeFi space – despite claiming decentralization, it still relies on centralized decision-makers and institutions in critical areas.

Lack of Transparency

From the occurrence of the event to public disclosure, Stream Finance has a significant lack of information transparency. Users are unable to understand the status of their funds in a timely manner and are only informed after losses have already occurred, which goes against the fundamental principle of openness and transparency in the blockchain industry.

collateral design flaw

XUSD, as a collateral stablecoin, quickly depegged when issues arose with its backing assets (Stream Fund), indicating flaws in its collateral mechanism and risk buffer design. When the underlying assets incur losses, stablecoin holders rush to flee, triggering a death spiral.

lack of regulation

Unlike traditional finance, the DeFi sector is still in a gray area regarding investor protection and fund regulation. When the loss of 93 million USD occurred, investors lacked effective recourse channels and protection mechanisms.

05 Future Outlook: Crisis Management and Industry Impact

In the face of the crisis, Stream Finance's top priority is to clarify the extent of the losses and responsibilities.

The investigation results of the law firm Perkins Coie LLP will be crucial, as it not only needs to determine the cause of the losses but also assess whether there is any negligence or misconduct.

For Stream Finance, the path ahead is full of challenges:

• Asset recovery: Whether it is possible to recover part of the lost assets will directly affect the project's survival chances.
• User trust: Rebuilding user confidence is a more difficult challenge than dealing with technical issues.
• Business Restart: It remains to be seen whether business operations can gradually resume after properly handling the crisis.

This event has also sounded the alarm for the entire Decentralized Finance industry:

• Risk Management: DeFi projects need to establish a more stringent risk management framework and fund custody mechanism.
• Transparency: Improve the transparency of fund management and investment decisions, allowing users to understand the status of funds in a timely manner.
• Decentralization: Truly implement the concept of decentralization to avoid single point of failure risks.

Conclusion

The explosion of Stream Finance has dropped another heavy bomb into the crypto market. In the world of Decentralized Finance, open-source code does not equate to risk transparency, and algorithm-driven does not mean the failure of human nature.

The XUSD stablecoin quickly “decoupled” during the crisis like melting ice cubes, while investor confidence collapsed like a toppled domino, making it difficult to rebuild. This scene once again confirms the harsh truth of the cryptocurrency market - trust is the most expensive asset and the most fragile luxury.