The Staked Stream USD (xUSD) stablecoin has lost its peg to the dollar following a major financial loss, sending shockwaves through the Decentralized Finance (DeFi) ecosystem. According to the blockchain security firm PeckShield, the token’s value plummeted to approximately $0.50 shortly after the incident. Data from CoinGecko shows xUSD trading at just $0.26, marking a 77% drop in a 24-hour period.

A $285 Million Hole in the Lending Market

The collapse has exposed nearly $285 million in direct debt across multiple major lending protocols. Research group Yields and More (YAM) identified significant exposure on platforms including Euler, Silo, Morpho, and Gearbox. Among the most affected creditors are curators such as TelosC, Elixir, MEV Capital, and Varlamore.

The risk extends beyond xUSD. Stream’s yield-bearing wrapped versions of Bitcoin and Ethereum, xBTC and xETH, were also widely used as collateral in DeFi lending markets. YAM warned, “It’s unclear how this will be settled in between xUSD/xBTC/xETH holders and lenders against these tokens.”

Other stablecoins with indirect exposure are also at risk. Elixir’s deUSD had lent 68 million USDC to Stream, which accounted for 65% of its backing. Meanwhile, Treeve’s scUSD was exposed through complex rehypothecation chains—a process where the same collateral is used multiple times across different platforms, creating a high risk of cascading failures.

Early Warnings Ignored

The crisis appears to follow several red flags. Days before the collapse, anonymous on-chain trader “Cbb0fe” warned that Stream’s on-chain data showed a dangerously high leverage ratio. The protocol reportedly held only about $170 million in supporting assets while its borrowing had reached $530 million, achieved through a “recursive looping” strategy.

Project Responses and Industry Reaction

In response to the incident, the Stream team acknowledged they had not been “as transparent as we should have been on how the insurance fund works,” though they claimed the funds were always intended for that purpose. Elixir, the protocol’s largest single creditor, announced it has “full redemption rights at $1 with Stream for its lending position” and is starting to unwind its exposure.

The event serves as a stark reminder of the diverse risks within the DeFi space. “The reported $93M Stream Finance incident is another reminder that operational risk extends beyond smart contracts,” stated Deddy Lavid, co-founder and CEO of blockchain security firm Cyvers.