$93M Shock: Stream Finance Suspends Deposits, XUSD Crashes Below Peg Amid DeFi Turmoil

Introduction

Stream Finance has paused deposits and withdrawals after an external fund manager disclosed a roughly $93 million loss in fund assets, according to the protocol’s announcement on X. The team said it has engaged Perkins Coie attorneys Keith Miller and Joseph Cutler to investigate and is withdrawing all liquid assets while providing periodic updates. Until the scope and cause of the loss are known, all deposits and withdrawals remain suspended, heightening uncertainty across the protocol’s ecosystem.

The disclosure sparked a sharp sell-off in Stream’s staked stablecoin, XUSD, which broke its $1 peg and plunged as much as 58% within 24 hours. Heavy selling on Arbitrum-based venues like Camelot and Uniswap accelerated the depeg, with aggressive XUSD-to-USDC swaps pushing the price from $1 to $0.92, then down to about $0.43 amid thinning bids, liquidations, and arbitrage pressure. Although the timing overlapped with reports of a large multichain exploit on Balancer, there is no indication the two events are related, but the simultaneity amplified anxiety across DeFi markets.

On-chain analysts said there’s no evidence of a direct smart contract exploit at Stream Finance so far, framing the drawdown as a trust shock. Social media chatter raised concerns about leverage and asset backing, with one claim suggesting about $170 million in supporting assets against roughly $530 million in outstanding loans—figures not independently verified at the time of writing. Launched in early 2024, Stream Finance marketed capital-efficient strategies blending DeFi and traditional techniques, including lending arbitrage, incentive farming, and hedged market making, sometimes via external managers. The episode underscores counterparty and leverage risks in yield-focused DeFi strategies, particularly where stablecoin pegs and external asset management intersect. 

Background

Stream Finance, a decentralized finance (DeFi) protocol, paused deposits and withdrawals after an external fund manager overseeing its assets disclosed approximately $93 million in losses. The team said it retained Perkins Coie attorneys Keith Miller and Joseph Cutler to investigate and is withdrawing all liquid assets while it assesses the situation. In the wake of the announcement, Stream’s staked stablecoin, XUSD, broke from its $1 peg and fell as much as 58% within 24 hours amid heavy selling on Arbitrum-based venues Camelot and Uniswap. While the timing overlapped with reports of a multichain exploit on Balancer, there is no evidence the events are related. On-chain observers emphasized that, as of now, there’s no confirmed smart contract exploit at Stream; rather, the drawdown appears to be a trust shock and liquidity crunch.

Key facts at a glance

• Stream Finance suspended deposits and withdrawals after a disclosed ~$93M loss linked to an external fund manager (counterparty risk).

• XUSD, the protocol’s staked stablecoin, depegged from $1 to as low as ~$0.43 during a rush to exit on Arbitrum.

• No evidence of a direct protocol exploit at the time of writing; investigation led by Perkins Coie is ongoing.

• Social media claims raised concerns about leverage and asset backing, though figures have not been independently verified in real time.

What is Stream Finance and how does XUSD work?

Stream Finance launched in early 2024 with a focus on “capital-efficient” yield strategies that blend DeFi and traditional market techniques. Users deposit USDC into a vault and receive XUSD, which seeks to generate yield through activities such as:

• Lending arbitrage (earning the spread between borrowing and lending rates),

• Incentive farming (earning token rewards for providing liquidity or staking),

• Hedged market making (providing liquidity with risk offsets).

In some cases, Stream worked with external asset managers when internal capacity was exceeded. This introduces counterparty risk—the possibility that a third party handling funds suffers losses or becomes unable to meet obligations. The $93M loss disclosed by the external manager underscores how counterparty and leverage risks can translate into immediate pressure on a protocol’s stablecoin and liquidity.

For context, “stablecoins” aim to maintain a stable value (typically $1) via collateral or algorithmic mechanisms. When confidence drops or collateral quality/liquidity is questioned, a “depeg” can occur, driving the price below $1 as holders rush to exit. 

Why did XUSD depeg and fall so quickly?

Following the loss disclosure, traders moved to swap XUSD into more liquid assets like USDC, especially on Arbitrum-based DEXs (Camelot, Uniswap). As sell pressure rose and bids thinned, the price slipped further. This dynamic often reflects a liquidity spiral:

• Holders sell to manage risk (or meet redemptions),

• Liquidity providers widen spreads or pull liquidity,

• Prices gap down, prompting more sales and potential liquidations.

On-chain analysts noted no confirmed smart contract exploit tied to Stream’s core contracts at the time of writing—suggesting the trigger was confidence and counterparty exposure rather than a code failure. Claims on social media suggested high leverage (e.g., assets vs. outstanding loans), which, if accurate, would amplify downside during stress events. However, those figures were not independently verified in real time.

For comparison, past depegs such as UST (algorithmic) and USDC’s brief 2023 depeg (banking exposure) show how differing designs face different stress channels:

• Algorithmic stablecoins depend on market incentives and can unwind rapidly.

• Fiat-backed stablecoins rely on reserve quality and banking partners.

Counterparty and leverage risk in DeFi: why it matters

DeFi protocols often pursue yields that depend on:

• External managers or centralized venues (counterparty risk),

• Borrowing to boost returns (leverage risk),

• Incentive programs that may not persist (sustainability risk).

These risks can be manageable when transparent and well-controlled, but they can magnify losses during market stress or operational failures. Industry bodies and regulators consistently flag these vectors:

• The Financial Stability Board (FSB) highlights stablecoin governance, reserve quality, and redemption risks.

• The BIS stresses the importance of transparency, robust reserves, and sound risk management.

• The IMF emphasizes the role of credible backing and oversight in maintaining pegs.

What users can watch for next

• Official audit or post-mortem: Expect updates from Stream Finance and the Perkins Coie investigation on the loss’s scope, mechanics, and responsibility.

• Reserve and exposure transparency: Clear on-chain and off-chain disclosures about backing, loans, and counterparties can help rebuild confidence.

• Liquidity restoration plan: Steps to restore redemptions, stabilize XUSD liquidity, and support market makers can influence recovery.

• Governance actions: Protocol votes, policy changes on leverage limits, counterparty whitelists, and risk controls may follow.