Stream Finance’s $93M Collapse Sparks DeFi Liquidity Panic

Stream Finance froze deposits and withdrawals after revealing a staggering $93 million asset loss tied to the mismanagement by an external fund manager.

This loss rapidly escalated into a liquidity crisis shaking the decentralized finance (DeFi) landscape, spreading strains across major protocols and stablecoins linked to Stream Finance’s ecosystem.

In immediate response to the turmoil, Stream Finance engaged legal experts from Perkins Coie LLP to investigate the root causes while committing to transparency and governance reforms.

Market reaction was swift, with the native stablecoin XUSD plunging from its $1 peg to as low as $0.43 within hours, igniting widespread concerns among users and investors.

DeFi Shockwaves: XUSD Collapse and Market Impact

The sudden loss exposed the risks embedded in leveraged DeFi strategies.

With total value locked (TVL) around $520 million and $160 million in user deposits now frozen, Stream’s reliance on a high-leverage model—estimated at four times exposure—revealed critical vulnerabilities.

The fallout has strained partner protocols such as Elixir’s deUSD, triggering market capitalization losses for multiple stablecoins linked to the broader DeFi sector.

Ethereum, a key asset in the DeFi market, experienced price declines coinciding with the crisis.

Recorded data showed Ether (ETH) trading at $3,320.84 with market capitalization shrinking to $400.82 billion, and volume down 4.66% in the past 24 hours.

These shifts reflect investor caution amid growing fears about systemic risks in decentralized finance.

“The engagement of Perkins Coie LLP underscores Stream Finance’s commitment to transparency and corporate governance,” the company said in an official statement, assuring stakeholders of continuous updates throughout the ongoing inquiry.

Lessons and Parallels: DeFi’s Fragile Foundations

Stream Finance’s collapse echoes past incidents like the Terra/Luna crash, spotlighting the dangers of opaque fund management and excessive leverage within decentralized systems.

Despite DeFi’s foundational promise of trustlessness and transparency, the reliance on external asset managers operating without sufficient oversight has amplified risks for users.

DeFi protocols continue to grapple with balancing innovation against systemic stability.

The Stream incident fuels calls for enhanced regulatory scrutiny, aiming to enforce clearer transparency standards and risk controls.