Stream Finance collapsed with $520M TVL backed by only $160M of real collateral, triggered by circular leverage unwinding across multiple lending protocols.
Security & Exploits ·
Stream Finance experienced a collapse in which total value locked reached $520M while only $160M in real collateral backed the protocol. The insolvency was triggered by circular leverage unwinding across multiple lending platforms, as borrowed stablecoins were repeatedly deposited and re-leveraged through interconnected protocols including Morpho, Euler, Silo, and Gearbox. This practice created a single point of failure in which redemption pressure cascaded through the entire network.
The mechanics of the failure centered on how xUSD, the protocol's native stablecoin, was looped through multiple lending venues rather than held as isolated positions. When redemptions began, the interconnected nature of these deposits meant that liquidations in one protocol triggered forced selling in others, amplifying losses across the ecosystem. The $360M shortfall between reported TVL and actual collateral represents the magnitude of leverage that unwound during this event.
The collapse raises questions about how such a large discrepancy between recorded value and real backing went undetected, and whether similar circular leverage structures exist in other lending protocols. The precise sequence of events that triggered the initial redemption wave and the distribution of losses across counterparties remain unclear from available information.