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Compound Finance, the decentralized crypto lending platform, has partially unfrozen its stablecoin markets, allowing withdrawals from two of the three markets that were suspended yesterday. The freeze occurred after risk manager Gauntlet detected a liquidity squeeze linked to Elixir’s deUSD ecosystem, raising concerns about market stability. While some users can now access their funds, the incident highlights the inherent risks within DeFi and the potential for cascading liquidity issues.
Gauntlet urged Compound to pull the plug on USDC, USDS, and USDT withdrawals on Ethereum, fearing a deUSD and sdUSD fallout could trigger a bad debt avalanche. A swift, temporary freeze, they argued, was the only shield.
Gauntlet has greenlit the reopening of Ethereum USDC and USDS markets, signaling a return to normalcy for users who can now breathe a sigh of relief and resume transactions. However, USDT users aren’t quite out of the woods. Gauntlet proposes a community-driven solution: inject more USDT into the market to fortify reserves and create a safety net, effectively turning a potential problem into a collaborative opportunity.
Voting on Gauntlet’s risk parameter proposal concluded on November 4th, passing that evening. The change was executed on-chain around 6 p.m. UTC today. As a safety measure, a temporary pause was suggested during the voting period.
The Pause
Elixir’s deUSD dollar faced a critical moment. Gauntlet halted its protocol because deUSD’s sister asset, sdeUSD, plunged to $0.86 while the protocol stubbornly read $1.06. This price disconnect, a gaping chasm between reality and the oracle’s perception, created a potential exploit, where borrowers could drain the system, borrowing far more than the market’s actual value could sustain. Gauntlet moved to defend the system from this vulnerability.
Compound slams the brakes: Lending frozen, but the DeFi doors aren’t locked. Borrowing and withdrawals are offline, yet users can still fuel the protocol with liquidity, chip away at existing loans, or shore up their positions with new collateral.
Compound: A DeFi Titan Still Holding Strong. With $2.26 billion riding on its lending markets, it’s the 7th largest lending protocol, proving it’s still a major player in the decentralized finance arena.
Elixir deUSD Depegs
Panic gripped the deUSD market as the stablecoin, once confidently pegged near $1, executed a dizzying nosedive around 3 p.m. UTC. It plummeted to a precarious $0.50 before a catastrophic freefall in the subsequent hours dragged it towards the dreaded zero, leaving investors reeling.
Imagine a high-speed rail line, built for Wall Street’s titans, not tourists. That’s deUSD, Elixir’s token exclusively powering Securitize, quietly ushering BlackRock, Hamilton Lane, and Apollo funds into the DeFi revolution. Think of it as the VIP entrance, where institutional giants finally get to play in the decentralized finance sandbox.
Elixir’s deUSD page. Source: Elixir
At press time, the price of deUSD is around $0.028, as it fails to regain its dollar price-peg.
Elixir deUSD 24-hour price chart. Source: CoinGecko
It’s All Connected to Stream
The tremors felt across the DeFi landscape originate from the November 4th implosion of Stream Finance. Its algorithmic dollar, xUSD, plummeted to a mere $0.17, dragging the yield optimization protocol down with it, leaving a trail of digital wreckage.
Elixir’s $68 million bet on Stream took a dark turn. Under a recursive minting agreement, Elixir channeled millions to the platform, securing xUSD as collateral. But the safety net Elixir touted – “full redemption rights at $1 with Stream” – proved illusory. An ominous X post on November 3rd, foreshadowed Stream’s impending doom, revealing a critical weakness in Elixir’s strategy just before the platform imploded.
Stream’s $90 million confession sent deUSD and sdeUSD spiraling. The impact detonated beyond Compound, culminating in deUSD’s total implosion just hours ago.
While the overall market took a tumble, sending Compound’s COMP token into a dip starting November 3rd, it’s showing resilience, holding steady over the last 24 hours like a seasoned sailor in a storm.
Ripple Effect
The crypto quake didn’t stop at the majors. FastUSD, the synthetic dollar built on deUSD, felt the aftershocks. This dollar-pegged token, integral to the Sei network’s DeFi landscape – including Yei Finance, its current TVL heavyweight – suddenly faced a stress test.
Yei Finance hit pause on its protocol November 5th, citing the swirling chaos in the fastUSD market. In a post on X, the team assured users that, despite the turbulence, all funds were safe. They pledged to repay approximately $8.6 million in USDC borrowed against staked fastUSD, emphatically stating that “all user funds on Yei remain fully solvent and will be 100% withdrawable.” Crisis averted, for now.
Yei Finance’s meteoric rise screeched to a halt just weeks after its CLO token debut on Sei and BNB Chain. On October 14th, the platform boasted a staggering $230 million in Total Value Locked, commanding a breathtaking 47% of Sei’s entire DeFi liquidity. Then, silence.
However, as of press time that figure has dropped to $82.6 million.
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