SUI News Today: Elixir's deUSD Crisis Exposes DeFi's Contagion Risks

Elixir Network has suspended support for its synthetic stablecoin deUSD, a BitcoinWorld report says, following the collapse of Stream Finance, a DeFi platform that suffered a $93 million loss, triggering a cascading crisis in the decentralized finance ecosystem. The decision, announced on social media, aims to mitigate further risks after 65% of deUSD's reserves became exposed to Stream Finance's failed lending operations, FinanceFeeds reported. The move has depegged deUSD from the U.S. dollar, with the token now trading at approximately 1.5 cents, underscoring the fragility of synthetic stablecoins in interconnected DeFi markets.

The collapse of Stream Finance, which halted withdrawals on November 4 after an external fund manager disclosed massive losses, has exposed systemic vulnerabilities in DeFi lending loops. Stream owed over $285 million to lenders, including $68 million from Elixir, which used the funds to back its xUSD stablecoin. Elixir's swift action to disable minting and redemption functions for deUSD was intended to prevent further liquidation risks while it processes repayments, Cointelegraph reported. The protocol has already settled 80% of deUSD holders, with the remaining 20% awaiting resolution through a claims portal.

The incident has reignited debates about the risks of synthetic stablecoins, which rely on cross-protocol collateral rather than traditional fiat reserves. Elixir emphasized that deUSD remains "fully backed" and that redemptions will be honored 1:1 in USDC once the recovery process concludes. However, the rapid depegging of deUSD and other stablecoins, such as Stable Labs' USDX, which fell below $0.60, The Block reported, has eroded confidence in uncollateralized synthetic assets. Analysts warn that the interconnected nature of DeFi protocols amplifies contagion risks, as seen in the 2022 collapses of Terra's UST and Iron Finance.

Elixir's response includes collaboration with lenders like Euler, Morpho, and Compound to unwind positions tied to Stream Finance. The protocol has also taken a snapshot of remaining deUSD balances to ensure orderly redemptions. While Elixir claims it holds full redemption rights against Stream, the latter has reportedly refused to repay or close positions, complicating recovery efforts.

The fallout extends beyond Elixir, with platforms like Suilend pausing Elixir's market on the Sui blockchain to isolate risks, Coinotag reported. DeFi observers highlight the need for stricter risk management frameworks, urging projects to diversify reserve compositions and avoid over-concentration in single counterparties. For investors, the incident underscores the importance of due diligence in assessing the backing and dependencies of synthetic assets.

As Elixir navigates the aftermath, the broader DeFi community watches closely for lessons on protocol resilience. The Bank Policy Institute has separately warned that unregulated stablecoin yields could trigger liquidation cascades, advocating for clearer oversight to prevent spillovers into traditional finance, Coinotag reported. Meanwhile, Elixir's handling of the crisis will shape perceptions of synthetic stablecoins, with recovery timelines and transparency likely to influence future adoption.