Ethereum News Today: DeFi's $220M Meltdown: Flawed Contracts and Leverage Trigger Systemic Crisis

The decentralized finance (DeFi) ecosystem faced a seismic shock on November 3, 2025, as two major protocols—Balancer and Stream Finance—announced combined losses exceeding $220 million, sparking widespread panic and raising urgent questions about smart contract security and governance. The back-to-back incidents, occurring against a backdrop of a volatile crypto market, triggered sharp sell-offs, liquidity freezes, and renewed scrutiny of DeFi's foundational risks.

Balancer, a leading Ethereum-based automated market maker (AMM), reported a catastrophic exploit of its V2 liquidity pools, with attackers draining over $128 million in assets across Ethereum, Base, Polygon, Arbitrum, and other chains. On-chain analysis revealed the breach stemmed from a critical vulnerability in the protocol's `manageUserBalance` function, which allowed unauthorized withdrawals by exploiting a faulty access control check in `_validateUserBalanceOp`, according to a FinancialContent report. The attacker, leveraging flash loans or scripted transactions, swiftly moved assets like 6,587 WETH ($24.5 million), 6,851 osETH ($26.9 million), and 4,260 wstETH ($19.3 million) into a single wallet before the community could react, as documented in a TradingView report.

This marked Balancer's third major breach since 2020, with previous incidents in 2020 and 2023 totaling $1.4 million. The protocol's native token, BAL, plummeted over 8% intraday as users withdrew funds, slashing its total value locked (TVL) from $678 million to an estimated $550 million, according to a Yahoo Finance article. Security firms like PeckShield and Nansen urged users to revoke token approvals, while forks such as Beets on Sonic Chain and Beethoven on Optimism also faced vulnerabilities due to shared codebases, as described in a CoinEdition report.

Meanwhile, yield-focused DeFi protocol Stream Finance disclosed a $93 million loss attributed to an external fund manager overseeing its assets. The incident caused its stablecoin, xUSD, to depeg from $1 to as low as $0.26, according to a Yahoo Finance article, triggering a domino effect across interconnected lending platforms. DeFi research firm Yields and More (YAM) identified over $285 million in exposure across Euler, Silo, Morpho, and Gearbox, with protocols like Elixir's deUSD facing amplified risks due to rehypothecation chains.

Stream Finance immediately halted withdrawals and deposits, engaging law firm Perkins Coie to investigate. The protocol's TVL—built on leveraged strategies with up to 4x exposure—collapsed from $520 million to $160 million, underscoring the fragility of high-yield models reliant on third-party managers, as noted in another Yahoo Finance article. "This isn't a hack but a systemic failure in risk management," noted pseudonymous analyst YAM, a point covered in a Yahoo report.

The dual crises sent shockwaves through the crypto market. Ethereum's price fell below $3,500 for the first time in months, with over $1.14 billion in liquidations across futures markets, according to an Economic Times report. Bitcoin, Solana, and BNB also declined, as traders fled to safer assets. The broader crypto market shed $100 billion in market cap, with Bitcoin's dominance rising above 60%.

Industry experts warned of long-term repercussions. Hasu, a strategic advisor to Lido, stated the incidents "set DeFi adoption back by 6–12 months," emphasizing the need for continuous security audits and real-time monitoring, as reported by FinancialContent. Berachain's emergency hard fork to recover $12 million in user funds and Lido's proactive withdrawal from Balancer pools illustrated the urgent demand for cross-chain safeguards, a point highlighted by CoinEdition.

The back-to-back failures have intensified calls for stricter security protocols, multi-layered audits, and regulatory clarity. While decentralized insurance platforms like Nexus Mutual may gain traction, the incidents underscore that audits alone cannot eliminate risks. For now, DeFi users are advised to revoke permissions, diversify across chains, and monitor wallet activity—lessons that may define the sector's path to recovery.