DeFi domino effect raises concerns, with potential hidden crises lurking beneath the surface

BlockBeats News, November 7 — Recently, concerns about a chain of DeFi liquidations leading to further liquidity crises have been spreading throughout the crypto community. On November 3, Stream Finance suddenly announced the suspension of deposits and withdrawals, pushing the storm sweeping the DeFi world to a climax. An external fund manager suffered a liquidation during the sharp market fluctuations on October 11, resulting in a loss of approximately $93 million in fund assets. The entire DeFi ecosystem may be facing a systemic crisis involving $8 billion TVL (Total Value Locked), with only about $100 million in losses currently reported.

DeFi liquidity protocol Elixir was affected by this, resulting in a $68 million risk exposure. Morpho’s co-founder also responded to the “insufficient liquidity” in some pools, stating that it was not due to a system vulnerability. Yield stablecoins have experienced the largest single-week outflow of funds since the Luna collapse, totaling $1 billion, while the market cap of Ethena Labs’ flagship stablecoin product USDe has also fallen below $9 billion, down about 45% over the past month. Compound has suspended several stablecoin lending markets on Ethereum to cope with the liquidity crisis, and the stablecoin USDX under Stables Labs also experienced a sharp depeg early this morning, dropping to $0.314. Whether the crisis caused by asset leverage nesting and lack of transparency in management is just the tip of the iceberg remains to be seen. For more detailed coverage, see “DeFi’s Potential $8 Billion Bomb, Only $100 Million Has Exploded So Far”.