TL;DR
- Stream Finance froze deposits and withdrawals after a $93M loss tied to an external fund manager.
- Perkins Coie is leading a legal probe while the XUSD stablecoin trades below $1.
- The case highlights how off-chain management can undermine DeFi transparency.
Stream Finance has become the latest DeFi platform to face scrutiny after reporting a $93 million loss linked to an external fund manager. The Stream team said the manager had overseen part of its treasury and disclosed the shortfall on November 4, 2025. In response, the protocol halted deposits and withdrawals, said pending deposits would not be processed, and began withdrawing liquid assets held elsewhere.
The company retained Perkins Coie LLP, naming partners Keith Miller and Joseph Cutler to lead a legal investigation into how the losses occurred and whether recovery is possible. Stream Finance said it is cooperating with legal counsel and prioritizing the protection of remaining assets, but has not provided further details on the investigation’s scope or timeline.
A Stablecoin Breaks Its Peg
The market reaction was immediate. XUSD, Stream’s native stablecoin, depegged sharply. Reports placed intraday lows between $0.30 and $0.53 before stabilizing around the $0.60–$0.70 range. On-chain data from DeFiLlama show Stream’s total value locked plunging from about $204 million to under $100 million within hours of the disclosure.
Trading venues scrambled to contain contagion. Liquidity pools linked to Stream saw redemptions spike. The depeg echoed the mechanics of previous algorithmic-stablecoin shocks. However, this time the trigger wasn’t code failure but off-chain fund management gone wrong.
When Off-Chain Managers Undermine On-Chain Assumptions
The loss at Stream Finance highlights a paradox at the heart of decentralized finance. Smart contracts promise transparency and automated control. Yet, many protocols entrust capital to external managers for yield generation or liquidity provisioning. These off-chain arrangements can outstrip the visibility offered by blockchain data.
If a manager takes leveraged positions, misreports PnL, or faces counter-party exposure, users see none of it until losses are crystallized. For protocols that market “audited smart contracts” and real-time dashboards, that blind spot can be existential.
Risk professionals note that traditional finance mitigates such risk through segregation of duties, daily reconciliations, and independent oversight. Those controls rarely exist in yield-seeking DeFi ventures.
What the Perkins Coie Investigation Will Probe
Hiring Perkins Coie, one of the most established U.S. crypto law firms, signals that legal accountability may extend beyond internal reviews. The investigation will trace fund flows and examine whether the external manager acted within mandate. It will also evaluate disclosure obligations to users. Potential outcomes range from civil recovery actions and clawback efforts to referrals for regulatory or criminal inquiry if misappropriation surfaces.
Stream’s statement that it is “withdrawing liquid assets” implies triage. The company may consolidate what remains in custody before counterparties or courts freeze balances. Such steps suggest the team anticipates a prolonged claims process, echoing the post-mortems that followed Celsius, Voyager, and BlockFi in previous cycles.
Contagion Watch: Collateral Across Lending Markets
Beyond direct losses, analysts are eyeing collateral exposures. Estimates shared by pseudonymous on-chain researchers suggest that as much as $280 million in loans across Euler, Morpho, and Silo may involve Stream-linked assets. These figures remain third-party estimates as the protocol didn’t confirm or deny any of them. Additionally, the possibility of impaired collateral has prompted lending markets to tighten collateral-factor parameters and add extra oracle checks.
If those loans are forcibly unwound or discounted, ripple effects could extend to unrelated liquidity pools. That risk is a reminder that composability cuts both ways.
Lessons for Protocols and Users
The $93 million loss at Stream Finance underscores how off-chain dependencies can negate on-chain transparency. For DeFi protocols that employ external fund managers, experts advocate several safeguards:
- Independent risk committees and daily NAV attestations.
- Hard limits on position size, leverage, and value-at-risk.
- Real-time dashboards showing mandate-level data.
- Periodic auditor access to brokerage and custody statements.
Users can also self-audit by reading whitepapers for terms like “external yield strategy” or “managed fund allocation.” If a protocol can’t explain how it redeems user assets when such partners default, the risk premium may outweigh the yield.
>>> Read more: Balancer Hack 2025: $128M Exploit Hits DeFi Forks
What Happens Next
Stream Finance has not published a timeline for unfreezing withdrawals. The protocol’s community forum and social feeds now serve as real-time triage boards where users share wallet screenshots and speculate on recovery ratios. Perkins Coie’s investigation will determine whether restitution is feasible or whether Stream joins the list of DeFi projects undone by governance blind spots.
For investors, the losses at Stream Finance have become a cautionary example of what can happen when decentralized systems rely too heavily on centralized fund-management structures.
Readers’ frequently asked questions
What happens to funds when a DeFi platform pauses withdrawals?
When a DeFi protocol halts withdrawals, user assets are typically frozen within its smart contracts or managed wallets. Funds aren’t necessarily lost, but users can’t move them until the protocol re-enables access or concludes an internal or legal review.
Why did the XUSD stablecoin lose its peg?
After Stream Finance reported its losses, investors rushed to redeem XUSD for safer assets. That sudden demand drained liquidity reserves and caused the price to drop below $1. That’s a common reaction when confidence in a stablecoin’s collateral weakens.
How can users check whether other DeFi projects use off-chain fund managers?
Most protocols describe their asset-management structure in whitepapers or audits. Users can look for terms like “external manager,” “off-chain yield strategy,” or “custodial partner.” If those terms appear, it’s a sign that part of the project’s funds are handled outside the blockchain which adds traditional financial risk to DeFi operations.
What Is In It For You? Action items you might want to consider
Track official updates from Stream Finance
Follow the project’s verified X (Twitter) account and official blog for announcements from Perkins Coie or the Stream team regarding the progress of the investigation and withdrawal status.
Monitor the XUSD stablecoin’s market recovery
Keep an eye on XUSD trading volumes and price stability on major DeFi dashboards such as DeFiLlama or CoinGecko to assess whether liquidity and confidence are returning.
Review exposure to protocols using external fund managers
If you use other DeFi platforms, check their documentation and audits to identify whether any assets are managed off-chain. Adjust allocations accordingly to reduce counterparty and governance risk.
