Stream Finance suspends withdrawals following $93M loss, launches investigation

DeFi protocol Stream Finance has halted all deposits and withdrawals following a major loss.

Decentralized finance platform Stream Finance has suspended deposits and withdrawals after suffering a $93 million loss, prompting concerns across the DeFi community and triggering a formal investigation.

The protocol, known for offering capital-efficient strategies by combining traditional finance tools with DeFi innovation, disclosed via X that the losses originated from an external fund manager overseeing its assets. As a result, Stream Finance has engaged blockchain-focused law firm Perkins Coie LLP to lead a comprehensive investigation into the incident.

Stream stated that attorneys Keith Miller and Joseph Cutler will oversee the inquiry, reflecting the firm’s emphasis on transparency and governance. The team is also in the process of withdrawing all liquid assets and has pledged to keep stakeholders updated with new developments. 

“Until we are able to fully assess the scope and causes of the loss, all withdrawals and deposits will be temporarily suspended. Any pending deposits will not be processed at this time,” Stream Finance added.

The platform’s native stablecoin, StakedStreamUSD (XUSD), lost its peg in the aftermath of the disclosure, plunging to approximately $0.50, adding to user concerns. The depegging has not only affected XUSD holders, but also other synthetic tokens under the Stream umbrella such as xBTC and xETH. 

Market participants and investors who depend on the protocol for trading and long-term holdings have expressed alarm over the sudden freeze which would not allow them to access their assets. 

Stream Finance’s estimated debt pegged at $280 million

A pseudonymous analyst known as YAM flagged that the situation could have far-reaching effects. He noted the complexity in settling claims between holders of xUSD, xBTC, xETH and the lenders collateralized by these tokens. Additionally, he warned of indirect exposure to the event through other stablecoin vaults like Elixir’s deUSD and Treeve’s scUSD.

YAM estimated that total outstanding debt tied to Stream assets may exceed $280 million, excluding exposure through interconnected lending platforms. Protocols potentially affected include Euler, Morpho, and Silo, among others, all of which have lending markets linked to Stream tokens.

Stream Finance launched in early 2024 with a mission to provide yield-generating DeFi services via activities like lending arbitrage, hedged market making, and incentive farming. Users typically deposited USDC in return for XUSD, which was designed to deliver stable returns.

With the protocol’s future now uncertain, attention turns to the investigation’s outcome and whether affected users will be compensated. The incident comes after the recent $116m drain on Balancer protocol and highlights the risks inherent in complex DeFi systems and could reignite debates about oversight, third-party fund managers, and protocol transparency in crypto finance.