Stream Fund Discloses $93M Loss, Temporarily Halts Operations

Decentralized finance (DeFi) protocol Stream Finance has announced significant losses amounting to approximately $93 million from its managed assets. The protocol confirmed late Monday that all withdrawals and deposits have been suspended following the disclosure of this loss by an external fund manager. In response to the incident, Stream Finance has engaged legal experts Keith Miller and Joseph Cutler from Perkins Coie LLP to spearhead a comprehensive investigation into the matter.

The firm communicated via X, stating, “Yesterday, an external fund manager overseeing Stream funds disclosed the loss of approximately $93 million in Stream fund assets. In response, Stream is in the process of engaging Keith Miller and Joseph Cutler of the law firm Perkins Coie LLP, to lead a comprehensive investigation into the incident.” Stream has emphasized that the suspension of deposits and withdrawals will remain in effect until the full extent of the issue is thoroughly understood. All pending deposits will also not be processed during this period.

Depegging of xUSD Raises Broader Concerns

Security firm Peckshield reported that Stream Finance’s stablecoin, Staked Stream USD (xUSD), experienced a sharp depegging. A depegging event occurs when a stablecoin’s value significantly deviates from the asset it is intended to be pegged to.

According to CoinGecko, the token fell by approximately 22% within a 24-hour period, reaching $0.958 at the time of Peckshield’s report. As of the current writing, the token has seen a further substantial decline, plunging to $0.5694, which represents a 63% decrease in a single day.

Beyond the immediate financial implications, the collapse of xUSD has ignited scrutiny regarding Stream Finance’s asset management and transparency practices. Omer Goldberg, Founder and CEO of Chaos Labs, commented on X that the event followed a “multichain @Balancer exploit” which contributed to a broader erosion of confidence across the DeFi ecosystem. He further noted, “Stream Finance does not currently maintain a comprehensive transparency dashboard or a Proof of Reserve; however, it publishes a link to a Debank Bundle that shows its on-chain positions.”

Liquidity Pressure and Leverage Exposure

Goldberg further elaborated that Stream Finance’s leveraged positions and exposure across multiple blockchain networks, including Arbitrum and Plasma, exacerbated the risks during the recent liquidity crunch. Additionally, he highlighted that Stream’s reliance on “fundamental value” oracles, rather than real-time market pricing, led to delayed liquidation triggers. While such systems are designed to prevent unfair liquidations during periods of high volatility, they can also transform “price discovery into trust discovery” when market confidence erodes.

In parallel, Parallel Protocol stated on X that several teams had attempted to contact Stream Finance for days without receiving a response. Consequently, Parallel has made the decision to reduce its exposure, assuring its users that “USDp on Avalanche has no direct or indirect exposure to xUSD… USDp on Avalanche is 100% backed by native USDC.”

Industry Debate on Risk Awareness Widens

The substantial loss incurred by Stream Finance has intensified the ongoing debate within the industry concerning the transparency and leverage levels of DeFi platforms. The $93 million loss underscores how deficiencies in oversight and collateral management systems can rapidly escalate into widespread issues. This situation also highlights the critical need for DeFi projects to maintain real-time visibility into their assets and possess robust proof that on-chain reserves are genuinely backed.

Furthermore, the incident points to a more profound challenge: many investors operate with insufficient information until critical failures occur. As the investigation into the Stream Finance incident progresses, it serves as a stark reminder that without a strong commitment to transparency and disciplined risk management, even prominent DeFi platforms are susceptible to rapid unraveling.