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

Stream Finance announced that an external fund manager lost approximately $93 million in user assets, leading to a 77% crash in the price of its stablecoin, Staked Stream USD (xUSD). Following the incident, all withdrawals and deposits were suspended while the protocol engaged a law firm to investigate the loss and determine creditor priorities. At the time of the announcement, xUSD fell from its $1 peg to approximately $0.50 and eventually traded at $0.26, representing a significant decline in value. The DeFi research group Yields and More disclosed $285 million in direct debt exposure across various lending protocols connected to Stream Finance, highlighting vulnerabilities in the DeFi ecosystem. Complications arose due to the use of rehypothecation chains, where collateral was leveraged multiple times across different platforms. This incident underscored the risks that external fund managers and operational decisions pose to decentralized finance, as reported by experts in the sector. The loss of funds and the subsequent market reactions illustrate the precarious nature of the DeFi landscape.

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