DeFi Platform Stream Finance Suspends Deposits and Withdrawals After Discovering $93 Million Fund Loss

Decentralized finance platform Stream Finance has suspended all deposits and withdrawals after discovering a $93 million loss in its assets. This has added more fuel to the fire as crypto investors have raised serious concerns about the DeFi market’s sustainability.

Launched in 2024, Stream Finance provides yield-generating DeFi services like lending arbitrage, hedged market making, and incentive farming. Users typically deposit USD Coin (USDC), Bitcoin (BTC), and Ethereum (ETH) on the platform in exchange for synthetic xUSD, xBTC, and xETH tokens, which deliver stable returns.

Stream Finance Locks User Assets After Discovering $93 Million Fund Loss by External Fund Manager, Launches Investigation

In a Monday X post, the Stream Finance team said that the issue came to their attention after an external fund manager overseeing its funds disclosed the loss on Sunday.

The protocol, known for offering capital-efficient strategies that combine traditional finance (TradFi) tools with DeFi-led innovation, has since hired lawyers from blockchain-focused law firm Perkins Coie to lead an investigation into the incident.

The team noted that they are in the process of withdrawing all liquid assets from the platform, which is expected to be “completed in the near term”. They have promised to provide stakeholders with “periodic updates as additional information becomes available.”

During the investigation, the exchange will “temporarily suspend” all withdrawals and deposits, and will not process any pending deposits.

Stream Finance’s xUSD Stablecoin Loses Peg and Tumbles to $0.51; Partner Platforms Euler, Morpho, and Silo are also at Risk

Stream Finance is a yield-focused DeFi platform that also offers a collateralized stablecoin called the Staked Stream USD (xUSD). However, xUSD lost its parity with the dollar on Sunday, as many users raised suspicions after the platform paused deposits and withdrawals without any formal communication.

Omer Goldberg, founder of AI-powered crypto research firm Chaos Labs, made a post on X about 10 hours before Stream’s announcement that its native stablecoin had begun to “depeg materially below its target range” after an over $100 million exploit on the automated market maker (AMM) and decentralized exchange (DEX), Balancer.

Following the disclosure, xUSD plunged to as low as $0.51. This depegging has also affected other synthetic assets on Stream, such as xBTC and xETH.

The platform’s users, who depend on it for trading and long-term holding, expressed disappointment over sudden fund freezes as they are prohibited from accessing their collateral assets.

Crypto Analysts Raise Concerns About Stream Finance’s Activities, Suspicions of an “Inside Job” Arise

Another concerning admission regarding Stream Finance came from pseudonymous crypto analyst “YAM”, who pointed out the complexity in settling claims between holders of xUSD, xBTC, and xETH, and the lenders collateralized by these tokens. 

He also warned of indirect exposure to the event through other stablecoin vaults like Elixir’s deUSD and Treeve’s scUSD. YAM estimates the total outstanding debt tied to Stream-native assets may exceed $280 million, excluding exposure through interconnected lending platforms. Protocols potentially affected include Euler, Morpho, and Silo, all of which have linked their lending markets to Stream tokens.

To make matters worse, on Friday, the Stream community questioned discrepancies between the total value locked (TVL) reported by the platform on its official website and the numbers listed on the popular on-chain data service DeFiLlama.

Stream Finance went on X to state that DefiLlama does not consider “recursive looping” as TVL, despite their own definition stating otherwise. In an effort to show transparency, the team said the website will make a distinction between user deposits and total assets deployed across its various strategies – reported to be approximately $160 million and $520 million, respectively.

The incident comes just a day after the Balancer v2 exploit, which saw hackers drain $120 million in liquid staked ETH tokens from the DEX’s core vault connected to its Ethereum, Polygon, Sonic, and Base pools.

Attention has now turned to the outcome of the ongoing investigation and whether Stream will compensate affected users. The protocol’s future now hangs by a thread, as the inherent risks of complex DeFi systems could reignite debates around the lack of industry oversight, protocol transparency, and third-party dependence.

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