Author: thedefinvestor; Translator: Plain Language Blockchain
Last week was a bad week for DeFi.
And not just because of the market crash.
Last week: Balancer, a top DeFi protocol, was exploited and lost $128 million. Stream Finance, a protocol that primarily generates yield through stablecoins, announced a loss of $93 million in user assets and is preparing to declare bankruptcy. Moonwell lost $1 million in an attack. Peapods' Pod LP... TVL (Total Value Locked) dropped from $32 million to $0 due to liquidation. The most devastating loss so far has been that of Stream Finance, as it affected not only its depositors but also stablecoin lenders on some of the space's largest lending protocols, including Morpho, Silo, and Euler. In short, here's what happened: CBB, a prominent figure on CT (Crypto Twitter), has started advising people to withdraw their funds from Stream due to its lack of transparency. Stream is allegedly running a "DeFi market-neutral strategy" but is unable to monitor its positions, and its transparency page has been consistently listed as "coming soon." This triggered a bank run, with a large number of users attempting to withdraw funds simultaneously. Stream Finance halted withdrawal processing because it had recently secretly lost a huge amount of user funds ($92 million) and was unable to process all withdrawal requests. This caused the price of its xUSD (Stream's interest-bearing "stablecoin") to collapse. This sounds bad enough, but the story doesn't end there. A huge problem is that xUSD is listed as collateral in money markets like Euler, Morpho, and Silo. Worse still, Stream has been using its so-called stablecoin xUSD as collateral to borrow funds from the money market to execute its yield strategy. With the current xUSD price collapse, many lenders who lent USDC/USDT to xUSD collateral on Euler, Morpho, and Silo are no longer able to withdraw their funds. According to the DeFi User Alliance YAM, at least $284 million in DeFi debt across various money markets is tied to Stream Finance! Unfortunately, a large portion of this money may be unrecoverable. As a result, many stablecoin lenders have suffered significant losses. What can we learn from this? I have personally been deeply involved in farming DeFi protocols for the past 2-3 years. However, following the recent events, I plan to re-evaluate my DeFi portfolio positions and become more risk-averse. Yield farming can be extremely profitable. I've earned some substantial returns from it over the past few years, but events like this can lead to significant losses. I have a few suggestions: Always verify the exact source of your yield. Stream isn't the only DeFi protocol claiming to generate yield through a "market-neutral strategy." Always look for transparency dashboards or proof-of-reserve reports where you can clearly see that the team isn't gambling with your assets. Don't blindly trust a protocol just because its team seems good. Consider whether the risk-reward ratio is good enough. Some stablecoin protocols offer an annualized return (APR) of 5-7%. Others may offer over 10%. My advice is not to blindly deposit funds into protocols offering the highest yield without proper research. If their strategy is opaque, or the yield generation process seems too risky, it's not worth risking your money for a double-digit annualized return. Or if the return is too low (e.g., 4-5% APR), ask yourself if it's worth it. No smart contract is risk-free; we've even seen established applications like Balancer attacked. Is it worth risking a low annualized return (APY)? Don't put all your eggs in one basket. As a general rule, I never deposit more than 10% of my portfolio into a single dApp, no matter how tempting the returns or airdrop opportunities may seem. This way, if a hack occurs, the impact on my finances will be limited. In short, when building your portfolio, prioritize survival over making money. It's always better to be safe than sorry.
