Author: thedefinvestor

Translation: Baihua Blockchain

Last week was a bad week for DeFi.

Not just because of the market crash. Last week:

• Balancer, a top DeFi protocol, was exploited, resulting in a loss of $128 million.
• Stream Finance, a protocol primarily generating yield through stablecoins, announced a loss of user assets worth $93 million 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.

So far, the most devastating loss has been that of Stream Finance.

Because it not only affected its depositors but also impacted some of the largest lending protocols in the space (including Morpho, Silo, and Euler) that provided stablecoin loans.

In short, here's what happened:

• CBB, a well-known figure on Crypto Twitter (CT), began advising people to withdraw from Stream due to its lack of transparency.

Stream was reportedly running a "market-neutral strategy" in DeFi but failed to monitor its positions, and its transparency page had been "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 secretly lost a significant amount of user funds ($92 million) shortly before and could not handle all withdrawal requests. This led to the collapse of its xUSD (Stream's interest-bearing "stablecoin") price.

It sounds bad enough, but the story isn't over.

A huge problem is that xUSD is listed as collateral on money markets like Euler, Morpho, and Silo.

Worse, Stream had been using its so-called stablecoin xUSD as collateral to borrow funds through money markets to execute its yield strategy.

Now that the xUSD price has collapsed, many lenders who lent USDC/USDT to xUSD collateralizers on Euler, Morpho, and Silo can no longer withdraw their funds.

According to the DeFi user alliance YAM, there is at least $284 million in DeFi debt tied to Stream Finance across major money markets!

Unfortunately, a large portion of this money may never be recovered.

As a result, many stablecoin lenders have suffered heavy losses.

What Can We Learn From This?

Over the past 2-3 years, I have personally been deeply involved in farming DeFi protocols.

But after the recent events, I plan to reassess my DeFi portfolio positions and become more risk-averse.

Yield farming can be highly profitable. I have made some substantial gains from it over the past few years, but such events can lead to significant losses.

I have a few suggestions:

• Always verify the exact source of yield.

Stream is not the only DeFi protocol claiming to generate yield through a "market-neutral strategy." Be sure to look for transparency dashboards or proof of reserves reports where you can clearly see that the team is not gambling with your assets.

Do not blindly trust a protocol just because its team seems reputable.

• Consider whether the risk-reward ratio is good enough.

Some stablecoin protocols offer annual percentage rates (APRs) of 5-7%. Others may offer over 10%. My advice is not to blindly deposit funds into the highest-yielding protocols without doing proper research.

If its strategy is opaque, or if the yield generation process seems too risky, it is not worth risking your funds for double-digit annual returns.

Or if the yield is too low (e.g., 4-5% APR), ask yourself if it is worth it.

No smart contract is zero-risk; we have even seen established applications like Balancer being attacked. Is it worth risking for a low annual percentage yield (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 enticing its yields or airdrop opportunities may seem. This way, if a hack occurs, the impact on my financial situation will be limited.

In summary, when building your portfolio, prioritize survival over making money.

It's better to be safe than to regret.

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