Stream Finance, a yield-optimization platform, has disclosed a $93 million loss attributed to an external fund manager, leading to the suspension of all deposits and withdrawals. This incident has triggered a cascade of depegs, highlighting the risks of leveraged strategies and rehypothecation in interconnected protocols.

Stream Finance's Collapse and xUSD Depeg

Stream Finance's troubles stem from its reliance on recursive leverage loops, where assets were rehypothecated across platforms like Euler, Morpho, and Silo to generate yields through minting its yield-bearing stablecoin, xUSD. These loops amplified returns but created fragility, with off-chain asset management risks such as high-leverage futures trading on centralized exchanges leading to liquidations when markets turned. Following the loss announcement, xUSD depegged sharply, dropping to as low as $0.27, a decline of over 70% from its intended $1 peg. The platform has withdrawn liquid assets and initiated a legal investigation led by Perkins Coie LLP, but transparency concerns persist, including the lack of proof-of-reserves and details on the fund manager.

Contagion Spreads to Elixir Network and deUSD

The fallout quickly impacted Elixir Network, which had significant exposure to Stream through its deUSD stablecoin. Elixir lent $68 million in USDC to Stream, collateralized by xUSD, accounting for approximately 65% of deUSD's total backing. As markets repriced the risk amid Stream's freeze, deUSD depegged severely, falling to around $0.09-0.10 by November 4-6, 2025, driven by panic selling and uncertainty over redemption. This exposure was part of a mutual recursive minting loop between xUSD and deUSD, amplifying leverage but creating a "perpetual motion machine" vulnerable to collapse. Protocols like SuiLend have requested loan repayments from Elixir amid the crisis, while others, such as Takara Lend and OpenEden, confirmed no exposure to mitigate user concerns.

Broader DeFi Exposure and Additional Depegs

Analysts estimate the total potential contagion across DeFi at around $285 million in exposed loans, affecting platforms like TelosC ($123 million exposure) and others through rehypothecated assets. The events follow a $117-120 million exploit on Balancer pools earlier in the week, which compounded liquidity pressures and contributed to the initial instability. Separately, Stable Labs' USDX depegged to around $0.37-0.41, linked to the Balancer exploit and abnormal borrowing rates, with its market cap dropping from $180 million to about $100 million before a partial recovery to $146 million. This USDX is distinct from Kava Network's USDX, which has not experienced a new depeg in 2025 but has historically shown volatility, such as dropping to $0.65 during the 2022 UST collapse.