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DeFi’s High-Stakes Rehypothecation: $284M Turmoil Reveals Deep-Rooted Systemic Weakness

DeFi’s High-Stakes Rehypothecation: $284M Turmoil Reveals Deep-Rooted Systemic Weakness

Bitget-RWA2025/11/04 13:40
By:Bitget-RWA

- Stream Finance's collapse exposed $284M in DeFi loans and stablecoin risks via rehypothecated collateral across platforms like Euler and Silo. - Key counterparties include Elixir ($68M), TelosC ($123.6M), and MEV Capital ($25.4M), highlighting systemic fragility in interconnected DeFi markets. - xUSD stablecoin faces liquidity crunches as rehypothecated assets amplify contagion risks across Arbitrum and Plume chains. - Recent exploits at Balancer and Moonwell erased $222M, prompting calls for regulatory

DeFi experts have identified $284 million in outstanding loans and stablecoin liabilities linked to the downfall of Stream Finance, a synthetic asset platform that reported a $93 million deficit in early November. The interconnected structure of decentralized finance has heightened vulnerabilities, as assets associated with Stream's

, xBTC, and xETH tokens have been rehypothecated across various protocols such as , Silo, and , setting off a chain reaction of possible defaults and liquidity shortages. According to independent analysts at YieldsAndMore, debts tied to Stream extend over at least seven blockchain ecosystems and involve entities like Elixir ($68 million), TelosC ($123.6 million), and MEV Capital ($25.4 million). This highlights the inherent instability of capital efficiency strategies in DeFi that rely on rehypothecation, as reported by .

Stream Finance, which enables users to mint synthetic assets using on-chain collateral, has halted all deposits and withdrawals while Perkins Coie LLP leads an ongoing investigation, according to

. The company has attributed the financial loss to an external fund manager responsible for its assets, though specifics have not been disclosed. Stream Finance has promised to share further information as the inquiry continues but has yet to present a plan for impacted users or creditors. The crisis has left xUSD—a stablecoin widely integrated into lending protocols—at risk, affecting lending operations on several networks, including and .

DeFi’s High-Stakes Rehypothecation: $284M Turmoil Reveals Deep-Rooted Systemic Weakness image 0

The root of the systemic threat lies in the repeated lending of Stream's collateral across multiple protocols to enhance returns. For instance, Elixir’s deUSD stablecoin provided $68 million in

to Stream, making up 65% of its total reserves. Elixir asserts it maintains "full redemption rights at $1" for this position, but Stream’s suspension of repayments has left creditors uncertain. Similarly, Treeve’s scUSD stablecoin is caught in complex lending cycles through Mithras and Silo, further complicating any recovery efforts, as noted by The Block. YieldsAndMore cautions that indirect exposures—such as derivative stablecoins and liquidity pools—could push the total risk above the current $285 million estimate.

The Stream Finance debacle follows a volatile week for DeFi, which also saw a $128 million breach at

and a $1 million oracle exploit targeting Moonwell. Collectively, these incidents have wiped out more than $222 million from decentralized platforms, revealing the fragility of interconnected collateral systems. The recently enacted GENIUS Act, which allows traditional banks to hold stablecoins, could provide a regulatory solution to these risks, though its adoption is still in early stages. For now, the DeFi sector faces the reality that while overcollateralization and rehypothecation can boost returns, they also increase the risk of contagion during market stress.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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