Contagion Fears Loom as Stream Finance Discloses $93 Million Loss

After a week of uncertainty, yield optimizer Stream Finance announced late last night that it has lost $93 million, a significant portion of its total value locked (TVL), and the market is bracing for further contagion from its collapse as the broader market craters.

What began as a back-and-forth between CBB, an anonymous whale, and the Stream team over risk management has evolved into an alarming event for decentralized finance (DeFi) users after Stream shared that “an external fund manager overseeing Stream funds disclosed the loss of approximately $93 million in Stream fund assets.”

As a result, Stream’s staked stablecoin, xUSD, has depegged by 73% to just $0.27, and users are scrambling to reassess their DeFi positions and avoid any contagion.

DeFi Lenders Left Holding the Bag

According to a summary from the Yields and More (YAM) DeFi group, there is now a mountain of debt across multiple DeFi protocols with exposure to Stream’s xUSD, xBTC, and xETH, with an estimated $285 million owed to lenders.

Notable DeFi protocols such as Telos and Elixir account for $190 million of this debt, with exposure to leading lending markets including Euler, Silo, and Morpho. YAM clarified, “There might be more; this is all we found.” While the knock-on effects for these lenders are unclear, both Euler and Morpho have seen significant drops in TVL today of between $400 million and $600 million.

Following the disclosure, cynics are looking back at the Stream team’s behavior over the last few weeks, and some are questioning whether the team sought to bring in new deposits to cover the hole.

A prominent trader known as “chud.eth,” took to X to share screenshots of a conversation with Stream’s founder, asking him to consider depositing into Stream on Oct 13.

“I am going to be really pissed if they knew about this hole on 13/10 and asked me to deposit $20m in full knowledge that it was unbacked,” said chud.eth.

Meanwhile, some users reportedly had no idea that they had exposure to Stream.

Johnny Time, the founder of DeFi security firm Ginger Security, drew attention to the ecosystem’s fragility, slamming Beefy Finance and related protocols for exposing his personal funds and family savings to xUSD.

“I personally had funds and family savings in this ‘safe USDC vault on Arbitrum’ promoted on Beefy. What we actually got was 100% exposure to xUSD — without ever being told,” he said.

“The real chain looks like this: Beefy → Silo → Arbitrum → Valarmore → StreamFinance (xUSD exposure). Too many entities, no oversight. Each layer passed the risk downstream until users were left exposed – unknowingly….DeFi deserves better,” he concluded.

Stream Finance did not respond to multiple requests for comment.