Re7 Labs, a DeFi risk curation and research arm of hedge fund Re7 Capital, is under severe criticism following the insolvency of Stream Finance, which triggered forced liquidations and exposed vulnerabilities across multiple decentralized finance protocols. The incident resulted in an estimated $27 million in exposure directly tied to Re7-managed vaults, with broader DeFi impacts reaching $284-285 million in debt across seven networks.
Re7 Labs posted a detailed update on platform X (formerly Twitter) outlining its efforts to address the crisis, but the communication backfired, amplifying community anger. The report revealed that Re7 Labs noticed discrepancies in protocols like xUSD Euler Markets, deUSD, sdeUSD on Plume, and sUSDX and USDX on BSC, but took proactive measures only after a market crash on October 10. For instance, with Elixir, borrowing in Re7 Labs' Euler Earn USDT0 vault continued until concerns arose, and repayment of sdeUSD positions was completed by November 6. Similarly, Stable Labs failed to respond to inquiries about borrowing rates, leading Re7 to set a November 5 repayment deadline, which was ignored.
The forced liquidations prompted emergency actions, including liquidity freezes and reduced loan-to-value ratios, while governance bodies like Lista DAO mobilized for risk mitigation through votes and asset reallocation. Community backlash centered on Re7 Labs' failure in due diligence, as it relied on assurances from Stream's CEO instead of rigorous checks, and the update was criticized for rehashing known data without offering solutions. This event echoes past DeFi crises like the UST/LUNA collapse, highlighting systemic risks in volatile markets, and follows other recent incidents such as a $128 million Balancer exploit and a $1 million Moonwell oracle manipulation.
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