DeFi just experienced a shock like a bank run: xUSD lost 93 million USD, triggering a contagion effect, causing TVL to drop 24% and investors to switch to defensive mode.
Data shows yield-yielding stablecoins are being pulled sharply, while some more reliable products are attracting Capital. DeFi leaders call for secure, transparent protocol design to restore trust.
- Stream Finance's xUSD lost $93 million, triggering a chain depeg; DeFi TVL dropped from $172.65 to $131.58 billion (-24%).
- USDe suffered a $400 million withdrawal, supply down 41% in a month; USDS rose nearly 8% to $5.7 billion.
- The industry calls for safe, transparent design and risk management in line with international standards to avoid systemic risk.
DeFi sees a liquidation shock that resembles a bank run
DeFi TVL decreased by 24%, equivalent to more than $42 billion withdrawn, from the peak of nearly $172.65 billion (October 7) to $131.58 billion at the time of recording, according to defillama.
The shock stemmed from a decline in yield-yielding stablecoins, which sent risk appetite across the market to the defensive. Stablecoin data on defillama also showed that the overall stablecoin market Capital shrank by about $2.5 billion in the first week of November, weakening leverage and liquidation across lending, borrowing, and DEX protocols.
In a tight liquidation environment, riskier assets are under strong Capital pressure, while cash flows favor transparent products with clear guarantee mechanisms.
Event Stream: xUSD Loss of $93 Million Triggers Chain Reaction
On November 4, Stream Finance announced a loss of $93 million due to an external fund manager, which was the collateral for xUSD.
The loss of collateral caused xUSD to depeg rapidly, exposing Holder to losses and a rush to withdraw Capital. The impact spread to stablecoins with direct/indirect exposure such as Elixir's deUSD and Stable Labs' USDX, amplifying the withdrawal pressure.
Cross-linking risks increase as these products also appear in curated vaults on large platforms like Morpho, causing widespread panic as investors fear systemic risk.
Related stablecoins lose their anchors en Peg amid pivot to defense
deUSD and USDX quickly fell below the $1 mark as investors rushed to convert to preserve Capital.
This case illustrates the concentration and contagion risks in DeFi: when one link fails to meet redemptions, pressure spreads to assets that are correlated or pooled in synthetic/vault products. Wide distribution channels on industry-leading platforms increase network effects, but also amplify the risk of contagion when an event occurs.
Yield-bearing stablecoins hit hardest
Ethena's staked USDe saw around $400 million withdrawn, reducing its size from $5 billion to $4.6 billion; the total USDe supply in the market fell 41% in a month, according to CoinGecko.
The safe-haven sentiment has shifted Capital away from complex yield products and toward assets with simpler, more transparent collateral mechanisms. In contrast, Sky Dollar (USDS), another yield stablecoin, has increased its volume by nearly 8% to $5.7 billion, becoming a rare beneficiary of the recent shock.
| Indicators | Data | Stage | Source |
|---|---|---|---|
| TVL DeFi | 172.65 → 131.58 billion USD (-24%) | 07/10 → time of recording | defillama |
| Capital outflows from DeFi | More than 42 billion USD | Short term after depeg event | defillama |
| Staked USDe (Ethena) | -400 million USD; 5 → 4.6 billion USD | Immediately after the shock | CoinGecko |
| USDe supply | -41% | Most recent month | CoinGecko |
| USDS (Sky Dollar) | +~8% to 5.7 billion USD | Recently | Synthesized from market data |
Shrinking stablecoin Capital weakens liquidation across the DeFi ecosystem
The total stablecoin market Capital shrank by about $2.5 billion in the first week of November, according to defillama Stablecoin.
Stablecoin Capital often leads to lower DEX volumes, adjusted lending rates, and increased discounts in small liquidation pools. In DeFi, stablecoins are liquidation intermediaries; as their size shrinks, the ripple effects on yield farming, lending, and Derivative become more evident.
In that context, protocols with good risk management mechanisms, transparent data disclosure, and good conversion responsiveness will be prioritized.
AAVE Calls for a Secure and Transparent Protocol Design
Stani Kulechov, Founder of AAVE, warned of systemic risks that could hold the industry back, emphasizing the need to build safe, secure, and user-centric DeFi .
“We are so close to building safe and secure DeFi , and we need to protect users. Hopefully this is a good lesson to build better DeFi .”
– Stani Kulechov, Founder of AAVE, November 2024, X
This call reinforces the need for higher safety standards: segregation of user assets, real-time Proof of Reserves , regular audits, third-party regulatory controls, and emergency stop mechanisms in case of abnormal fluctuations.
With yield stablecoins, emphasis should be placed on managing interest rate risk, conversion liquidation , and basis risk between collateral and liability.
DeFi can self-regulate if it adheres to international standards on risk management
Self-regulation is possible if DeFi prioritizes transparency of collateral assets, risk disclosure, and adherence to operational governance recommendations.
International reference frameworks such as the IOSCO 2023 Cryptocurrency Market Recommendations and the FSB 2023 Global Regulatory Framework help guide risk management, conflicts of interest, and information transparency. BIS also highlights the risk of Capital flight in stablecoins, especially where the collateral structure is less robust.
Increased stress testing, diversification of managers and collateral sources, and a commitment to rapid redemptions are the foundations for restoring confidence.
IOSCO, 2023 | FSB, 2023 | BIS, 2022
Impact scorecard: who lost and who gained from the recent shock
Losers: Yield stablecoins have complex structures, notably USDe with a net withdrawal of $400 million and a supply drop of 41% for the month.
Beneficiaries: Higher reliability products like USDS increased by nearly 8% in size. At the ecosystem level, TVL decreased by more than $42 billion, showing the sensitivity of liquidation to price stability risks.
Investors should focus on risk management during the rebalancing phase.
In the short term, monitoring TVL, stablecoin Capital , depeg metrics, and redemption liquidation is paramount.
Prioritize protocols with on-chain data disclosure, Proof of Reserves, independent audits, and clear governance mechanisms. Reference tools include defillama (TVL, stablecoins) and CoinGecko (stablecoin yield statistics) to track Capital flows and valuation changes.
Frequently Asked Questions
What is Depeg stablecoin?
Depeg is a situation where a stablecoin deviates from the $1 mark. This is usually due to lack of exchange liquidation , loss of collateral, or psychological shock. Tracking defillama and CoinGecko data helps to identify risks early.
Why does xUSD cause widespread contagion?
xUSD is a component of many products and vaults, causing risks to be passed on to deUSD, USDX and related protocols. When investors convert en masse, liquidation dries up quickly, creating a Capital withdrawal spiral.
What does a 24% TVL drop mean for DeFi yields?
Reduced liquidation increases the cost of Capital and yields fluctuate. Some pools may increase APY to attract liquidation, but the risk also increases. Prioritize protocols with transparent reserves and good risk management.
How are USDe and USDS different in this shock?
USDe suffered a $400 million withdrawal and its supply fell 41% in the month, indicating strong pressure on yield-yielding stablecoins. In contrast, USDS increased its volume by nearly 8% to $5.7 billion, reflecting Capital flows to more trusted products.
What metrics should I monitor to assess systemic risk?
Three core metrics: Total market TVL, stablecoin Capital , and depeg levels of major stablecoins. Data sources: defillama (TVL, stablecoins) and CoinGecko (metrics by category).
