A major decentralized finance protocol suffered one of 2025's steepest stablecoin depegs Tuesday morning when Stream Finance's Staked Stream USD (XUSD) plummeted as low as $0.30, marking a catastrophic 70% collapse after the platform disclosed that an external fund manager had lost approximately $93 million in managed assets.
The dramatic depeg sent shockwaves through DeFi circles and triggered an immediate suspension of all deposits and withdrawals on the platform as Stream Finance launched a comprehensive legal investigation into the losses. By Tuesday afternoon, XUSD was trading around $0.48, representing a 62% decline in the preceding 24 hours—making it one of the worst stablecoin failures of the year.
In a statement posted to X early Tuesday, the Stream Finance team confirmed the scope of the disaster and outlined its immediate response. "Yesterday, an external fund manager overseeing Stream funds disclosed the loss of approximately $93 million in Stream fund assets," the company wrote.
The platform immediately moved to secure remaining assets, stating it has "begun withdrawing all remaining liquid assets as a precautionary step" while the full investigation unfolds. Stream Finance has retained attorneys Keith Miller and Joseph Cutler of Perkins Coie LLP - a top law firm specializing in blockchain and cryptocurrency matters - to lead the probe into how the losses occurred.
"Until we are able to fully assess the scope and causes of the loss, all withdrawals and deposits will be temporarily suspended," the project stated, emphasizing that its decision to engage Perkins Coie reflected a "commitment to transparency and corporate governance."
The suspension means users who deposited USDC into Stream's vaults in exchange for XUSD - which was designed to deliver stable returns through lending arbitrage, hedged market making, and incentive farming - now have no access to their funds while investigators work to determine what went wrong and whether any recovery is possible.
Rapid Price Collapse Deepens User Concerns
Blockchain security firm PeckShield first flagged the crisis earlier Monday, noting that XUSD had initially fallen by 23% before the decline accelerated dramatically to 58% within a single hour as panic selling intensified across decentralized exchanges.
According to market data from CoinGecko, XUSD touched an all-time low of $0.30 during the worst of the selling, though it recovered slightly to around $0.48-$0.50 by Tuesday morning. The token's market capitalization collapsed to approximately $95.6 million, with 24-hour trading volume spiking to $1.59 million as traders rushed to exit positions.
Both the 7-day and 30-day performance metrics mirror the sharp 62% downturn, confirming this as one of the steepest and most sustained stablecoin depegs witnessed in 2025 - a year that has already seen significant stress in the sector.
The depeg didn't affect only XUSD holders. Stream Finance's other synthetic tokens under its umbrella - including xBTC and xETH - also experienced significant volatility as market participants questioned the integrity of the entire Stream ecosystem.
Systemic Risks Extend Beyond Immediate Holders
The crisis quickly revealed potentially far-reaching contagion risks across the broader DeFi landscape. XUSD had been widely adopted as collateral in multiple curated lending markets across platforms such as Euler, Morpho, and Silo, operating on various blockchain networks including Plasma, Arbitrum, and Plume.
According to pseudonymous analyst YAM, total outstanding loans and borrowings secured by Stream-related collateral likely exceed $280 million. Critically, YAM noted this figure excludes indirect exposures such as those involving deUSD (Elixir Network's decentralized US Dollar) and other complex lending loops that could magnify losses across interconnected protocols.
The situation raises complex questions about how claims will be settled between holders of xUSD, xBTC, xETH and the lenders who accepted these tokens as collateral. Parallel Protocol announced it was cutting its exposure, assuring users that "USDp on Avalanche has no direct or indirect exposure to xUSD" and that it remains "100% backed by native USDC."
Several lending platforms reported they had been attempting to contact Stream Finance for days without receiving responses, heightening concerns about communication and transparency during the crisis.
Timing Coincides With Major Balancer Exploit
The Stream Finance collapse comes on the heels of another devastating blow to the DeFi sector: a $128.6 million exploit on Balancer V2, one of the industry's longest-running and most audited protocols.
The Balancer attack occurred Monday across multiple blockchains including Ethereum, Base, Polygon, Arbitrum, Optimism, and Sonic, with Ethereum suffering the heaviest losses of approximately $100 million. Security analysts identified the exploit as an invariant manipulation attack targeting Balancer's V2 vaults, which serve as the protocol's central liquidity engine.
Notably, Balancer had undergone more than 11 separate security audits over its lifetime, yet still fell victim to a sophisticated smart contract vulnerability that allowed attackers to manipulate exchange rates and drain liquidity pools at artificially favorable prices.
The attack also impacted several Balancer forks, though StakeWise DAO confirmed it had managed to recover 73.5% of its affected funds - more than $20 million worth of stolen assets - working together with security experts from Balancer and Gnosis Chain.
While the Stream Finance loss and Balancer exploit appear unrelated, analyst Omer Goldberg noted that the timing overlap amplified anxiety across DeFi markets and accelerated defensive positioning by protocols and users alike. The coincidence of two major incidents within 24 hours reignited debates about systemic vulnerabilities in interconnected DeFi systems.
2025 Emerges as Devastating Year for DeFi Security
The Stream Finance and Balancer incidents underscore an alarming trend: despite years of development, auditing, and security improvements, decentralized finance platforms remain vulnerable to catastrophic losses.
According to recent PeckShield data, September 2025 alone saw more than 20 major exploits on DeFi platforms, resulting in collective losses exceeding $127 million. While that figure represented a 22% decline from August's $163 million in losses, 2025's cumulative total has already surpassed $3 billion in stolen or lost funds.
Notable casualties include the Bunni decentralized exchange, which shut down completely after an $8.4 million hack left the team unable to afford new security audits. The platform did announce that users would still be able to withdraw remaining assets and that treasury funds would be distributed to token holders, but the closure highlighted how security failures can prove fatal even to promising projects.
With the Balancer exploit, November's DeFi losses have already surged past $120 million, making it the third-worst month for DeFi breaches in 2025 - a particularly striking development given that October had recorded the year's lowest monthly loss figure of just $18 million.
Investigation Focuses on Third-Party Management Risks
Stream Finance launched in early 2024 with an ambitious pitch: providing yield-generating DeFi services through capital-efficient strategies that blend traditional finance techniques with decentralized protocols. Users deposited USDC into vaults and received XUSD in return, which was designed to deliver stable returns through various sophisticated strategies.
The platform worked with external fund managers when internal capacity was exceeded - a decision that now stands at the center of the ongoing investigation. While delegating management to third parties can allow platforms to scale rapidly and access specialized expertise, the Stream Finance case demonstrates the heightened risks when oversight and transparency mechanisms prove inadequate.
Industry experts noted that Stream Finance's reliance on "fundamental value" oracles instead of real-time market pricing may have delayed liquidation triggers during the crisis. While such systems can prevent unfair liquidations during normal volatility, they also convert "price discovery into trust discovery" when confidence collapses—exactly the scenario that unfolded as XUSD depeged.
Additionally, discrepancies between Stream's self-reported metrics and third-party tracking services raised questions about transparency. The platform's website reported approximately $160 million in user deposits versus $520 million in total assets deployed across strategies - figures that differed substantially from DefiLlama's listings. Stream had defended this discrepancy by noting disagreements over how to account for recursive looping strategies in TVL calculations.
Final thoughts
As Stream Finance's investigation proceeds under Perkins Coie's guidance, affected users face an anxious wait to learn whether any recovery of their funds will be possible. The firm's statement emphasized it will provide "regular updates" as more information becomes available, though it provided no timeline for when operations might resume.
The parallel Balancer investigation is similarly ongoing, with that platform's engineering and security teams working to determine the full scope of vulnerabilities and whether additional funds remain at risk.
Both incidents will likely accelerate regulatory scrutiny of DeFi platforms, particularly regarding third-party fund management, proof of reserves, real-time transparency dashboards, and the systemic risks posed by protocols that serve as collateral across multiple interconnected platforms.
For now, the XUSD collapse and Balancer exploit serve as stark reminders that even established, audited protocols with strong reputations can experience catastrophic failures - and that DeFi users face risks that extend far beyond their immediate holdings when protocols serve as critical infrastructure across the broader ecosystem.