Stablecoin protocol Stream Finance collapses, three major lending platforms hit by failures

Stream Finance announces a loss of $93 million in user assets and is preparing to declare bankruptcy, affecting stablecoin lenders on lending protocols such as Morpho, Silo, and Euler. This article is sourced from Thedefinvestor, written, compiled, and edited by Baihua Blockchain. (Background: After the depegging of xUSD stablecoin, the USDX pool also dried up.) (Additional background: Balancer: V2 pool was exploited with a loss of $128 million, V3 unaffected; experts criticize: audits done over a dozen times are basically useless.)

For DeFi, last week was a terrible week, not only because of the market crash. Last week: Balancer, a top DeFi protocol, was exploited, losing $128 million. Stream Finance, a major protocol generating yield through stablecoins, announced a loss of $93 million in user assets and is about to declare bankruptcy. Moonwell lost $1 million in an attack. Peapods’ Pod LP TVL (Total Value Locked) dropped from $32 million to $0 due to liquidation.

So far, the most devastating is the loss of Stream Finance because it not only affected its depositors but also impacted some of the largest lending protocols in the space, including Morpho, Silo, and Euler.

In short, here’s what happened: CBB, a well-known figure on CT (Crypto Twitter ), started advising people to withdraw from Stream due to its lack of transparency. Stream supposedly runs a “DeFi market-neutral strategy” but cannot monitor its positions, and its transparency page has been “coming soon.” This triggered a bank run, with many users trying to withdraw funds simultaneously. Stream Finance halted withdrawals because it had secretly lost a huge amount of user funds ($92 million) recently and could not process all withdrawal requests.

This caused the price of its xUSD (Stream’s interest-bearing “stablecoin”) to collapse.

It already sounds bad, but the story isn’t over. A major issue is that xUSD is listed as collateral on money markets like Euler, Morpho, and Silo. Worse, Stream has been using its own so-called stablecoin, xUSD, as collateral, borrowing funds through money markets to execute its yield strategies.

Now that xUSD’s price has collapsed, many lenders who lent USDC/USDT against xUSD collateral on Euler, Morpho, and Silo can no longer withdraw their funds. According to DeFi User Alliance YAM, at least $284 million of DeFi debt across major money markets is tied to Stream Finance! Unfortunately, a large portion of this money may be unrecoverable.

As a result, many stablecoin lenders have suffered heavy losses.

What can we learn from this?

Over the past 2-3 years, I have been deeply involved in DeFi protocol farming. But after this recent event, I plan to reassess my DeFi investment positions and become more risk-averse. Yield farming can be highly profitable. I’ve earned substantial returns over the years, but such events can lead to significant losses.

Here are some recommendations:

Always verify the exact source of yields.
Stream is not the only DeFi protocol claiming to generate returns through “market-neutral strategies.” Be sure to look for transparency dashboards or reserve proof reports where you can clearly see that the team isn’t gambling with your assets.
Don’t blindly trust a protocol just because its team looks reputable.
Consider whether the risk-reward ratio is sufficient.
Some stablecoin protocols offer annual percentage rates (APR) of 5-7%. Others may offer over 10%. My advice is not to blindly deposit funds into the highest-yielding protocols without proper research.
If their strategies are opaque or the yield generation process seems too risky, risking your funds for double-digit annual returns isn’t worth it.
Or if the yield is too low (e.g., 4-5% APR), ask yourself if it’s worth it.
No smart contract is risk-free; even established platforms like Balancer have been attacked. Is risking for a low APY worth it?
Don’t put all your eggs in one basket.
As a general rule, I never deposit more than 10% of my portfolio into a single dApp, regardless of how attractive the yield or airdrop opportunity seems. This way, if a hack occurs, the impact on my finances is limited.

In summary, when building your investment portfolio, prioritize survival over profit.
Security is better than regret.

Related reports:

• USDX stablecoin depegged significantly to $0.38! Whales attempted to buy the dip but couldn’t redeem, causing a chain reaction in the DeFi market.
• Embracing low-risk DeFi, retail survival strategies in a bear market.
• Stablecoin protocol Stream Finance collapses, three major lending platforms also hit by the fallout.

This article was first published on BlockTempo, a leading blockchain news media outlet.