DeFi Faces Confidence Challenges: External Mismanagement Reveals Deep-Rooted Vulnerabilities

Stream Finance, a DeFi protocol, has halted all deposits and withdrawals following a reported $93 million loss tied to an outside fund manager. The suspension was announced on November 4, 2025, with the platform engaging law firm Perkins Coie LLP to conduct an investigation into the matter, sparking renewed debate over risk controls in the cryptocurrency industry, according to

. The loss, which has been blamed on poor management by a third-party fund handler, led to a sharp decline in user confidence. As a result, its algorithmic stablecoin dropped to $0.938 during a surge of withdrawals, as reported by .

The company stated that it is in the process of retrieving liquid assets and will provide further information as the inquiry continues. Perkins Coie, recognized for its background in financial investigations, has appointed attorneys Keith Miller and Joseph Cutler to oversee the case, according to

. Stream Finance further clarified that any outstanding deposits will not be processed until the situation is resolved. The firm pointed to a "trust-driven sell-off" as a major contributor to the turmoil, with blockchain analysts noting significant trading activity on but no evidence of a direct protocol breach, as mentioned by CryptoNews.

The repercussions have spread across DeFi markets. XUSD, which lost 58% of its value within a day, serves as collateral for various lending protocols on Ethereum-based platforms. The analyst known as YAM estimated that more than $280 million in loans and borrowings are tied to Stream-related assets, heightening systemic risk, according to CoinDesk. The abrupt depegging and operational shutdown have brought renewed attention to algorithmic stablecoins, which depend on intricate systems to keep their value at $1.

Industry experts are drawing attention to the wider consequences for DeFi governance. "This episode highlights how fragile trust can be in protocols that rely on external managers," commented a blockchain analyst who wished to remain unnamed. The announcement came at the same time as a $116 million exploit at

(BAL), further unsettling investors, according to . Although the incidents are not connected, they underscore persistent weaknesses in smart contract frameworks.

Stream Finance's turmoil unfolds during a difficult period for DeFi. Earlier in 2025, companies such as Personalis Inc and SCYNEXIS Inc posted significant quarterly losses, reflecting broader economic headwinds, as noted by Coinpedia and CryptoNews. However, Stream's nearly $93 million loss—almost 100 times greater than those reported by the other firms—has attracted particular scrutiny. The platform's use of external fund managers, a common strategy in DeFi to boost returns, is now being questioned.

The involvement of Perkins Coie could set a new standard for legal responsibility in the crypto space. The firm previously advised Apex Treasury Corp. on a $344.7 million blockchain IPO, highlighting its expanding influence in the industry. The outcome of Stream's case may shape how DeFi projects handle governance lapses, especially as regulatory oversight increases.

At present, users are left in uncertainty. The platform's assurances of "periodic updates" provide little reassurance, and the recovery process remains unclear. As the investigation continues, this event stands as a stark warning about the dangers inherent in decentralized finance—where restoring trust, once lost, is a formidable challenge.