Hidden Leverage and External Party Risks Lead to XUSD Downfall

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Hidden Leverage and External Party Risks Lead to XUSD Downfall

Bitget-RWA2025/11/04 12:54

By:Bitget-RWA

- Stream Finance's XUSD stablecoin collapsed to $0.30, freezing $160M in user funds after a $93M loss linked to an external fund manager. - The crisis followed a $100M exploit at Balancer Protocol, amplifying DeFi market anxiety and triggering rapid fund withdrawals. - Stream's high-leverage model and hidden $520M TVL vs. $160M actual deposits raised red flags about risky third-party fund usage. - XUSD's collapse exposed DeFi vulnerabilities, reigniting debates on third-party risks and urging audits for pr

The

XUSD

stablecoin, created by the DeFi platform Stream Finance, plunged to an all-time low of $0.30 on November 4, 2025. This sharp decline followed the platform’s announcement of a $93 million deficit linked to an outside asset manager. The token’s 70% fall from its intended $1 value sparked widespread alarm throughout decentralized finance, highlighting persistent weaknesses in yield-driven protocols. In response, Stream Finance halted all deposits and withdrawals, locking up $160 million in user assets, and brought in the law firm Perkins Coie LLP to look into the missing funds, as reported by

a Yahoo Finance report

This turmoil unfolded during a period of heightened instability in DeFi. Just two days earlier, Balancer Protocol experienced a $100 million security breach—one of the year’s most significant incidents,

reported by TradingView

. Experts observed that the close timing of these crises intensified investor fears, prompting swift withdrawals from protocols seen as under-collateralized. “This is only a brief respite, not a permanent solution,” cautioned a PeckShield analysis, which noted that although crypto hacks dropped by 85% in October 2025 compared to the previous month, risks in the sector remain fluid, according to

a BeinCrypto article

Hidden Leverage and External Party Risks Lead to XUSD Downfall image 0

Stream Finance’s downfall was largely attributed to its aggressive leverage strategy. The protocol invested user funds in repeated yield-generating tactics and had promoted returns as high as 12% through leveraged farming across 50 liquidity pools. However, inconsistencies between its stated total value locked (TVL) of $520 million and independent sources like DeFiLlama—which verified only $160 million in user deposits—sparked concerns about undisclosed leverage, according to

a Coinotag report

. Community investigators suggested that the fund manager may have used client assets to take on greater risks, leaving the protocol unable to fulfill withdrawals when the market turned, as noted by Yahoo Finance.

The repercussions went beyond Stream Finance. The collapse of XUSD set off a chain reaction, with

Euler

and other lending platforms coming under strain due to outdated oracle data. The incident also revived discussions about the dangers of relying on external fund managers in DeFi. “This highlights how crucial it is to understand the mechanisms behind protocol yields,” stated Minal Thurkal, head of DeFi Ecosystem Growth at CoinDCX, in

a Coinotag article

Stream Finance has committed to retrieving liquid assets and sharing regular updates, but users remain in limbo. Losses in DeFi have surpassed $3 billion so far this year—driven by events like the $8.4 million Bunni DEX hack—demonstrating the sector’s ongoing vulnerability, according to Coinotag. Although the platform stresses its commitment to transparency through legal investigations, investors are advised to favor protocols with thorough audits and transparent governance structures.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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