DeFi's Fragile Web: Elixir Stabilizes After $93M Collapse

Elixir, a DeFi liquidity protocol, has opened a 1:1 USDC redemption channel for its deUSD stablecoin, following the collapse of Stream Finance's xUSD stablecoin and the subsequent $93 million loss in user assets. As of November 7, Elixir reported that approximately 80% of deUSD holders (excluding those holding deUSD via Stream Finance) have successfully redeemed their tokens for USDC, with the remaining balances set to be processed through a newly launched claims portal official redemption channel. The protocol has suspended minting and redemption functions to mitigate liquidation risks and ensure an orderly wind-down of the stablecoin, according to a Phemex report.

The crisis began on November 4 when Stream Finance, a decentralized lending platform, disclosed that an external fund manager had lost $93 million in user assets, triggering a 77% depeg of xUSD to $0.26, as reported by Yahoo Finance. This collapse exposed vulnerabilities in DeFi's interconnected lending ecosystem, with Elixir's deUSD stablecoin holding $68 million in USDC lent to Stream—65% of its total backing—according to a CoinMarketCap analysis. Elixir has since taken a snapshot of remaining deUSD and sdeUSD balances and is collaborating with protocols like Euler, Morpho, and Compound to liquidate Stream's loans and facilitate redemptions, per a FinanceFeeds report.

Stream currently holds about 90% of the deUSD supply (approximately $75 million), and Elixir's remaining collateral assets are largely tied to Morpho loans issued to Stream, an Odaily update says. The protocol has asserted full redemption rights at $1 for its lending position but emphasized that payouts will only proceed once legal counsel determines creditor priorities, according to Yahoo Finance. Elixir also warned users to avoid third-party platforms and stick to the official redemption channel to prevent scams.

The fallout has rippled across DeFi, prompting Compound to temporarily pause multiple stablecoin markets on Ethereum, including USDC, USDS, and USDT, to address liquidity risks tied to Elixir's deUSD and sdeUSD, according to a LookonChain post. Analysts note that the collapse mirrors past DeFi failures like Terra's UST and Iron Finance, highlighting systemic risks in leveraged, cross-protocol lending models, as described in the FinanceFeeds piece. Elixir's swift action to redeem 80% of deUSD and disable further minting aims to contain contagion while protecting holders' interests, per a LookonChain notice.

Despite the challenges, Elixir maintains that all deUSD liabilities remain fully backed and that redemptions will be honored at par. The protocol's efforts underscore the fragility of synthetic stablecoins reliant on opaque collateral chains, as market confidence in uncollateralized DeFi assets continues to erode, a point also noted in the FinanceFeeds report.