Stream Finance announced that a third-party fund manager overseeing part of its portfolio lost around $93 million in user assets, causing a 77% drop in the value of its Staked Stream USD (xUSD) stablecoin.
Following the disclosure, withdrawals and deposits were suspended. The company hired law firm Perkins Coie to investigate and help determine creditors’ claims.
“We are withdrawing all liquid assets and expect this process to be completed soon,” Stream Finance stated on X.
According to PeckShield, the stablecoin fell from its $1 peg to around $0.50, and then to $0.26, where it currently trades, CoinGecko data shows.
More than $285 million in linked exposure
On-chain data from Yields and More (YAM) shows that the Stream collapse has affected at least $285 million in assets on lending platforms Euler, Silo, Morpho and Gearbox.
Leading curators TelosC, Elixir, MEV Capital and Varlamore are among the worst affected.
YAM said agreements between xUSD, xBTC and xETH holders and their lenders could be difficult as these tokens were used as collateral on multiple platforms.
Secondary tokens under pressure
DeFi projects with indirect exposure also face tensions.
Elixir’s deUSD, which had lent 68 million USDC to Stream (about 65% of its reserves), is now at risk.
Treeve’s scUSD is also linked through rehypothecation chains, where the same collateral is reused on lending platforms, worsening liquidity stress.
High leverage behind the collapse
An anonymous on-chain trader known as “Cbb0fe” warned days earlier that Stream’s balance sheet showed $170 million in supporting assets versus $530 million in loans, giving it a leverage ratio of more than 4x.
Stream used a recursive loop strategy, repeatedly lending and borrowing against its own tokens to gain performance differentials. The heavy leverage left the system unable to absorb losses once the fund manager’s assets disappeared.
Unclear issues regarding insurance fund and transparency
Community members discovered that Stream had been charging an undisclosed 60% fee for an internal “insurance fund” that was not properly separated from users’ strategies.
User chud.eth accused the team of poor disclosure.
Stream later admitted that the fund existed, but said the communication “wasn’t as clear as it should have been.”
This lack of separation raised questions about whether the fund could cover any of the current losses.
The largest creditor begins to withdraw money
Elixir, Stream’s largest creditor, said it has full redemption rights at $1 per token and has begun withdrawing its lending position from the protocol.
Analysts say this may reduce Elixir’s exposure, but could worsen the liquidity crunch in Stream and make asset recovery more difficult.
Human supervision remains a weak point
Deddy Lavid, CEO of blockchain security company Cyvers, said the case shows that even decentralized systems rely heavily on human oversight.
“When third-party administrators or off-chain operations fail, users are still at risk,” Lavid said.
Consequences and ongoing investigation
Stream Finance has frozen all activity while law firm Perkins Coie conducts an investigation into the $93 million loss and the actions of the third-party fund manager responsible for managing users’ assets.
The protocol stated that it will withdraw all remaining liquid assets and review exposure in its xUSD, xBTC, and xETH products.
Several DeFi protocols, including Elixir, Treeve, Euler, and Morpho, have begun assessing their own exposure to the incident due to interconnected credit positions.
Stream said creditors’ priorities will be determined after the investigation and that user funds will remain temporarily inaccessible until the assessment is complete.
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