Confidence Shaken as External Mismanagement Triggers Crisis

The Decentralized Finance (DeFi) protocol Stream Finance has frozen all deposits and withdrawals after reporting a staggering $93 million loss attributed to the mismanagement of an external fund manager. The platform announced the suspension on November 4, 2025, and has since hired the law firm Perkins Coie LLP to launch a full investigation, casting a new spotlight on the inherent risks within the crypto industry.

The financial damage quickly sparked a crisis of confidence among users. In the rush to withdraw funds, Stream Finance’s algorithmic stablecoin, XUSD, lost its peg to the U.S. dollar, falling to $0.938. The company acknowledged a “trust-driven sell-off” as a primary factor, while blockchain analysis confirmed heavy trading activity on Arbitrum without any evidence of a direct hack on the protocol itself.

Systemic Risks and Market Contagion

The fallout from Stream’s failure extends far beyond its own platform. XUSD serves as collateral in various lending protocols across the Ethereum ecosystem, creating a significant contagion risk. Analyst YAM estimated that over $280 million in loans and borrowed assets are directly tied to Stream’s tokens, threatening a wider destabilization of connected DeFi markets.

This incident has once again highlighted the fragility of algorithmic stablecoins, which rely on complex mechanisms to maintain their value. The sudden depegging of XUSD, which lost 58% of its value in just 24 hours, serves as a stark reminder of their vulnerabilities.

A Scrutinized Model in a Volatile Market

Stream Finance’s crisis underscores a critical weakness in the DeFi sector: its reliance on external, third-party managers to generate returns. While a common practice, this strategy introduces a significant point of failure rooted in human error and oversight. One blockchain analyst noted that the episode demonstrates just how fragile trust can be in protocols that delegate control to outside entities.

The timing of the announcement has amplified investor anxiety, coinciding with a separate $116 million exploit at the Balancer (BAL) protocol. Although unrelated, these back-to-back events paint a troubling picture of the persistent security and governance challenges plaguing the industry. Stream’s turmoil also unfolds against a backdrop of broader economic headwinds that have pressured crypto firms throughout 2025.

With Perkins Coie—a firm with a growing presence in the blockchain space—leading the investigation, the outcome could establish new precedents for legal accountability in DeFi. For now, users are left in limbo, with the platform offering only vague promises of periodic updates. As the crypto community watches, the Stream Finance case has become a cautionary tale about the immense difficulty of rebuilding trust once it’s broken.