Stream Finance Halts Withdrawals, Retains Perkins Coie

Stream Finance – a permissionless, tokenized yield fund that offered users above-market returns on their USDC, BTC, ETH, and EURC – is insolvent.

Late last night, Stream disclosed that an "external fund manager overseeing Stream funds" had lost approximately $93M in fund assets. The market appears pessimistic on recovery percentages; Stream tokens have traded at increasingly steep discounts throughout the morning.

What's the Scoop?

• Sudden Losses: Stream Finance disclosed on X Monday night that an "external manager" overseeing part of its treasury reported a $93M loss of firm-managed assets. Stream has suspended all deposits and withdrawals, halting all pending transactions as it seeks to resolve the matter. It remains unknown who the external manager was at this time.
• Legal Retainer: Stream has hired Perkins Coie LLP, a globally renowned Seattle-based law firm, to lead a comprehensive investigation into the incident. Attorneys Keith Miller and Joseph Cutler, two veterans in crypto-related litigation and securities law, are leading the inquiry.
• Asset Recovery in Progress: Stream said it is withdrawing all liquid assets to secure remaining funds and expects the process to conclude soon. The company has pledged to issue regular updates as new findings emerge.
• Delta Neutral Demise: Stream operated with a leveraged yield farming model. The fund deployed customer deposits to yield opportunities with above-market returns, and hedged against price exposure using leveraged perpetual futures. It appears Stream may be the first publicized casualty of crypto industry-wide auto-deleveraging that occurred on October 10.
• Elixir Seniority: Elixir, another actively managed crypto yield fund that held approximately $68M of exposure to stream, allegedly has an off-chain agreement with Stream that guarantees priority $1 repayments above all other creditors.
• DeFi Contagion: The Stream Saga – and the contagion it has set in motion – appears to have only just begun. At least nine onchain risk managers and four major DeFi lending markets hold confirmed exposure to Stream.
• Suspicious Practices: Stream had a massive leveraged long on its own xUSD dollar-pegged token. Last week, the Stream xUSD wallet was reported as holding 60% of outstanding xUSD supply and borrowing at ~90% LTVs against this position via Euler on Plasma.

What's the Take?

Crypto's everlasting infatuation with yield once again bites the industry in the butt; the full extent of the damage this time around remains to be seen.

The rise of flexible lending primitives – like the risk-isolated markets popularized by Euler and Morpho – directly contributed to this crisis, creating ripe conditions for moral hazard by ceding the responsibility of due diligence to third-party vault managers, who instead chose to prioritize for vault returns and AUM.