Stream Finance Stablecoin Plunges 77% After Protocol's Fund Manager Loses $93 Million

Stream Finance revealed that an external fund manager lost approximately $93 million in user assets, leading to the suspension of all withdrawals and deposits. The incident caused its stablecoin, Staked Stream USD (xUSD), to crash 77% from its dollar peg, plummeting to around $0.26. The protocol engaged legal firm Perkins Coie to investigate the loss and determine creditor priorities. Research indicates nearly $285 million in direct debt exposure across lending protocols like Euler and Morpho, highlighting vulnerabilities within decentralized finance (DeFi). Prior to the collapse, the crypto market faced ongoing pressures, with Bitcoin's value slipping below $104,000. The loss was exacerbated by complex rehypothecation practices where collateral was reused across different platforms. Stream Finance acknowledged a lack of transparency regarding an alleged insurance fund while aiming to withdraw liquid assets. This incident underscores the risks associated with external fund management and off-chain custody in DeFi, emphasizing that operational challenges extend beyond smart contract vulnerabilities.

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