K3 Capital Threatens Legal Action Against Elixir Over deUSD Depeg

Crypto-native DeFi risk management group K3 Capital is threatening legal action against deUSD stablecoin issuer Elixir, alleging a "coordinated fraudulent scheme" orchestrated by Elixir and facilitated by now-insolvent tokenized yield fund Stream Finance in a post on the Euler Discord.

What's the Scoop?

• Contagion Background: On November 3, Stream Finance – a tokenized yield fund that offered users above-market returns on their USDC, BTC, ETH, and EURC – disclosed that an "external fund manager overseeing Stream funds" had lost approximately $93M in fund assets.
• Elixir Collapse: Fallout to Elixir (an exposed lender to Stream) was initially contained by claims of senior redemption rights, yet its deUSD stablecoin depegged just days later after Elixir suspended redemptions. At the time of writing, deUSD stablecoins were trading at just four cents on the dollar, marking one of the most aggressive stablecoin implosions since the collapse of Terra/Luna.
• Strategy Swap: Elixir initially positioned itself as a tokenized basis-trading strategy, marketed as low-risk and delta-neutral with a fully doxxed team. In late October, unbeknownst to lenders, Elixir unilaterally changed its investment mandate, lending ~$68M USDC to Stream Finance via Morpho, effectively transforming Elixir from a “basis trading” into a tokenized fund-of-funds with a completely different and riskier profile.
• Stream Shenanigans: In a circular fashion, Stream also utilized Elixir’s deUSD in a looping strategy that drained liquidity from lending platforms where Elixir was integrated, leaving lenders exposed when the incestuous system came under stress.
• Legal Action Underway: K3 Capital says it has retained a top U.S. attorney, served Elixir founder Philip Forte with a cease-and-desist, and is preparing a civil complaint on behalf of affected lenders.