Stream Finance Stablecoin Falls 77% After $93M Fund Loss

Stream Finance announced that an external fund manager overseeing part of its portfolio lost about $93 million in user assets, leading to a 77% drop in the value of its stablecoin Staked Stream USD (xUSD).

Following the disclosure, withdrawals and deposits were suspended. The company hired law firm Perkins Coie to investigate and help determine creditor claims.

“We are withdrawing all liquid assets and expect this process to finish soon,” Stream Finance stated on X.

According to PeckShield, the stablecoin fell from its $1 peg to about $0.50, and later to $0.26, where it currently trades, data from CoinGecko shows.

Over $285 Million in Linked Exposure

On-chain data from Yields and More (YAM) shows that Stream’s collapse has affected at least $285 million in assets across Euler, Silo, Morpho, and Gearbox lending platforms.

Major curators TelosC, Elixir, MEV Capital, and Varlamore are among the most affected.
YAM said settlements between holders of xUSD, xBTC, and xETH and their lenders could be difficult since these tokens were used as collateral across multiple platforms.

Secondary Tokens Under Pressure

DeFi projects with indirect exposure are also facing strain.
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 across 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 backing assets against $530 million in borrowing, giving it a leverage ratio of more than 4x.

Stream used a recursive looping strategy, repeatedly lending and borrowing against its own tokens to earn yield spreads. The heavy leverage left the system unable to absorb losses once the fund manager’s assets went missing.

Unclear Insurance Fund and Transparency Issues

Community members found that Stream had been collecting an undisclosed 60% fee for an internal “insurance fund” that wasn’t properly separated from user strategies.

User chud.eth accused the team of poor disclosure.
Stream later admitted that the fund existed but said communication “was not as clear as it should have been.”

This lack of separation raised doubts about whether the fund could cover any of the current losses.

Largest Creditor Starts Withdrawal

Elixir, Stream’s top creditor, said it holds 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 liquidity shortages at Stream and make asset recovery more difficult.

Human Oversight Still a Weak Point

Deddy Lavid, CEO of blockchain security firm Cyvers, said the case shows that even decentralized systems depend heavily on human supervision.

“When external managers or off-chain operations fail, users still bear the risk,” Lavid said.

Aftermath 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 external fund manager responsible for managing user assets.
The protocol stated it is withdrawing all remaining liquid assets and reviewing exposure across 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 lending positions.
Stream said creditor priorities will be determined after the investigation, and that user funds remain temporarily inaccessible until the assessment is complete.

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