An abrupt collapse
Late in 2025, Stream revealed that an external fund manager it employed had lost approximately US $93 million in assets. (CCN.com) The revelation sent shockwaves through DeFi, as Stream quickly froze withdrawals and deposits, and its stablecoin XUSD lost its peg — falling from roughly $1 to as low as $0.30 (or even lower per some reports) within hours. (CryptoPotato)
Stream’s collateral strategy had been built around its own stablecoin XUSD, and along the way it apparently borrowed another synthetic stablecoin, deUSD (issued by Elixir), to support its engineering of yield. (Coinpaper)
In the aftermath, Elixir suspended support for deUSD—claiming that Stream held roughly 90 % of the remaining supply and owed around $68 million to Elixir. (CryptoRank)
In short: what began as a promising yield‐product collapsed into what many are calling a leveraged house of cards.
What exactly did Stream promise and how did it deviate?
On paper, Stream marketed XUSD as a “stablecoin”—a synthetic dollar‐pegged token that earned yield via what was supposed to be a “delta-neutral” strategy (i.e., minimal directional market risk). According to a recent deep dive:
- Stream claimed to operate like a tokenised hedge fund disguised as a DeFi stablecoin provider. (Bitget)
- But in reality, it lacked transparency: Only about US $150 million of its claimed ~$500 million TVL could be clearly traced on‐chain via DeBank, while large portions of its activity were off‐chain. (Bitget)
- Strategies included “looped lending” (repeated borrowing and re‐depositing the same collateral) and off‐chain proprietary trading (which may have included selling volatility, short vol positions). (Bitget)
- Worse, Stream reportedly mixed funds among their products (XUSD and deUSD), making it nearly impossible for ordinary users to assess their individual risk exposure. (Bitget)
In other words: the contrast between the marketing (“stablecoin”, “delta‐neutral”, “safe yield”) and the execution (opaque trades, high leverage, interconnected token designs) was stark.
Key fault lines that led to the collapse
Here are several of the most glaring issues that emerged in the wake of the collapse:
1. Opaque strategy and lack of transparency
Stream’s on‐chain disclosures did not live up to its claims. As the deep dive notes:
“Of its claimed $500 million TVL, only about $150 million could be tracked on‐chain via platforms like DeBank.” (Bitget)
Without clear public accounting of strategy, positions, and collateral, users were exposed to unknown risks.
2. Extreme leverage via looped lending
Stream apparently engaged in “looped lending” — collateral is deposited, borrowed against, then re‐deposited and borrowed again, amplifying exposure. (Bitget)
One example cited: “The xUSD wallet holds 60% of the circulating xUSD, all of which is leveraged.” (Bitget)
When the market turned—or when something went off script—the leverage magnified losses.
3. Off‐chain fund management and external exposure
The $93 million loss was reportedly incurred by an external fund manager that handled part of Stream’s assets. (CCN.com)
Because these portions were off‐chain or proprietary, the risk of counterparty failure, misexecution, or lack of oversight increased.
4. Interdependence with another synthetic stablecoin (deUSD)
Stream borrowed deUSD to back its own product. When Stream struggled, deUSD’s issuer (Elixir) halted support and revealed exposure to Stream. (Coinpaper)
Thus the collapse wasn’t isolated: contagion risk spread across protocols.
5. Sudden market stress and liquidity crunch
According to the deeper article:
“On October 10th … the so-called “Red Friday” … a dramatic spike in volatility … Because we lack historical samples of such extreme volatility, even lightly leveraged positions of around 2× were completely liquidated in this wave.” (Bitget)
When the unexpected occurred, the system’s fragilities were exposed.
Repercussions across the ecosystem
The collapse of XUSD (and the underlying issues at Stream) has broader implications:
- Confidence in yield‐oriented “stable” products has taken a hit. When a stablecoin collapses, even non‐leveraged tokens are viewed skeptically.
- The incident reinforces the danger of “tokenised hedge fund” models within DeFi: they may promise stability but behave like high‐risk funds.
- Protocols that depend heavily on opaque off‐chain fund managers or high leverage will face increased scrutiny.
- Regulatory bodies and institutional participants may lean toward stricter oversight of stablecoins and DeFi yield platforms. For example, the GENIUS Act in the U.S. aims to create clearer rules for payment stablecoins. (Coinpaper)
A look at timelines and key facts
- Stream disclosed the loss (~US $93 M) tied to an external fund manager. (CryptoPotato)
- Withdrawals and deposits were temporarily suspended by Stream. (CCN.com)
- XUSD lost its peg: from $1 to as low as ~$0.30 (or even ~$0.17 per some sources). (The Daily Hodl)
- Elixir halted support for deUSD and announced ~80% of holders had redeemed before the depeg. (CryptoRank)
- Analysts observed that “looped lending”, external fund manager risk, and lack of transparency were core causes. (Bitget)
What can users, developers and regulators take away from this saga?
For users:
- Always vet the stablecoin’s collateral and the underlying strategies. A claim of “delta-neutral yield” means little without transparency.
- Check whether positions are fully on-chain and auditable; heavy off‐chain exposure raises counterparty risk.
- Beware of platforms promoting high yield with low risk — if risk is hidden, the yield may be subsidised by leverage.
- View stablecoins not as risk-free deposits, but as financial instruments subject to failure.
For protocol developers:
- Build transparent systems: publicly disclose positions, leverage, collateral, and strategy.
- Avoid looped lending structures that amplify risk beyond what is obvious to users.
- If external fund managers are used, ensure robust oversight, risk controls, and clear disclosures.
- Isolate risk: don’t interdepend your stablecoin on another synthetic stablecoin in a circular way.
For regulators & policymakers:
- The collapse underlines the need for strong reserve backing, auditability, disclosure, and oversight in the stablecoin ecosystem.
- Regulatory frameworks (like the GENIUS Act) should aim to treat all stablecoin issuers—banks, nonbanks, DeFi protocols—on a level playing field. (Coinpaper)
- Transparency in DeFi operations must improve, especially where retail users are exposed to sophisticated hedge fund–style risks.
Larger context: repeated stablecoin failures
This is not the first time a stablecoin has lost its peg due to design flaws or hidden risks. For example, the collapse of TerraUSD (UST) in 2022 wiped out nearly US $45 billion in market value in a week. (Wikipedia)
While each failure has unique details, common threads emerge: insufficient transparency, excessive leverage, and the misuse of “stablecoin” terminology to market high‐risk products.
In summary
Stream Finance’s collapse (and the resultant crash of XUSD) is a stark reminder that any product labelled “stablecoin” is only as strong as its design, transparency, and risk controls. By presenting a stable-yield narrative while carrying hidden, high‐leverage exposure—some off‐chain, some looped—the system was structurally fragile. When market conditions turned (or an external manager failed), the fall was rapid and severe.
For participant confidence to be restored in DeFi’s stablecoin and yield ecosystem, the industry must embrace clarity, limit hidden leverage, and avoid sprawling circular dependencies. Users must remain vigilant, protocols must prioritise risk controls, and regulators must push for consistent standards.
Sources:
- “Elixir Stablecoin Collapses After Stream Finance Loss” – Coinpaper. (Coinpaper)
- “DeFi Platform Elixir Halts Support for deUSD After Stream Finance’s $93 M Loss” – CryptoRank/CryptoNews. (CryptoRank)
- “In-depth Review of the Reasons Behind the xUSD Crash” – Bitget/ChainCatcher. (Bitget)
- “Crypto Stablecoin XUSD Plummets 82% After Stream Finance Reveals $93,000,000 Loss” – Daily Hodl. (The Daily Hodl)
- “XUSD Stablecoin Crashed 70% After $93 M Stream Finance Loss” – CryptoPotato. (CryptoPotato)
- “Stream Finance $93 M Meltdown Sends XUSD Stablecoin …” – CCN. (CCN.com)
