The decentralized finance (DeFi) sector experienced a severe liquidity shock in early November 2025, with over $42 billion drained from Total Value Locked (TVL) following a cascade of stablecoin depegging events and security breaches. This downturn, described by Aave founder Stani Kulechov as a hard but needed reset, was triggered by a $93 million loss at Stream Finance, the protocol behind the yield-bearing stablecoin xUSD, due to an external fund manager's mishandling of user deposits.
The incident quickly led to xUSD depegging, which spread contagion to other yield-stablecoins with exposure, including Elixir's deUSD and Stable Labs' USDX. Investors rushed to redeem capital, causing a 24% drop in DeFi TVL from a recent high of $172.65 billion on October 7 to $131.58 billion by November 9. The stablecoin market cap contracted by $2.5 billion in the first week of November alone, with yield-based stablecoins suffering the most.
Ethena's Staked USDe was particularly hard hit, seeing approximately $400 million in outflows and a 41% supply reduction over the past month, shrinking from $5 billion to $4.6 billion. Conversely, Sky Dollar (USDS) emerged as a beneficiary, with its market size growing nearly 8% to $5.7 billion amid the turmoil.
Security breaches amplified the crisis, including a $120 million exploit on Balancer's V2 vaults on November 3, linked to a rounding error in its batchSwap function. Stream Finance's halt of withdrawals and deposits, along with Elixir winding down deUSD, intensified scrutiny of DeFi's structural vulnerabilities. The fallout affected all major blockchains, with Ethereum's TVL dropping ~13% to $74.2 billion, Solana and Arbitrum each losing ~14%, and BNB Smart Chain and Base shedding around 10-12%.
Kulechov warned that such systemic issues could set the industry back significantly but emphasized the need for safer protocol design and transparency to rebuild confidence and protect users in the evolving DeFi landscape.
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