DeFi analytics company Gauntlet has
put forward an urgent proposal to halt
the borrowing of
USDC
, USDS, and
USDT
on Ethereum’s
Compound
v3 platform, citing a liquidity emergency involving Elixir’s deUSD and sdeUSD tokens. Announced on November 5, this action seeks to limit further damage as these tokens—used as collateral in the impacted markets—have experienced sharp declines in value. Gauntlet’s recommendation is to freeze withdrawals and new loans until risk parameters are revised and approved by governance, though the proposal is still awaiting formal adoption.
The urgency follows a
reported $93 million loss of assets
at Stream Finance, a DeFi platform focused on yield, which revealed the incident after an external fund manager exposed the deficit. Stream’s stablecoin,
xUSD
, quickly
dropped to just $0.24 on November 4
. The downfall was linked to Elixir’s deUSD and sdeUSD, which lost over 70% of their value, setting off a cascade of effects across related protocols. In response, Stream Finance has
halted deposits and withdrawals
and has brought in law firm Perkins Coie to conduct an investigation.
Gauntlet’s proposal draws attention to the systemic dangers of recursive DeFi tactics, where leveraged trades and unclear fund management can magnify risks. The firm pointed out that the price feeds for deUSD and sdeUSD were artificially high, enabling users to borrow against collateral at values well above the real market price—a major vulnerability that fueled the crisis. “Pausing these markets is the only way to stop further withdrawals that could destabilize the system, at least until governance approves new risk parameters,” a Gauntlet spokesperson said, as posted on the
Compound Community Forum
.
This action has stirred discussion in the DeFi space. Many see the pause as a necessary safeguard, while some critics argue it could erode trust if prolonged. “Every hour these markets are frozen chips away at confidence in Compound’s liquidity assurances,” one forum user commented. Others stressed the importance of more rigorous collateral screening, especially for major stablecoin pools.
The incident highlights deeper weaknesses in DeFi’s rapid growth. Just days earlier, the automated market maker
Balancer
suffered a $100 million hack, adding to concerns about protocol safety. Analysts such as Omer Goldberg from Chaos Labs connected the two events, suggesting the Balancer exploit may have sped up capital outflows from riskier protocols.
Currently, the
Ethereum
stablecoin markets are in a fragile position. Gauntlet has called for swift governance decisions to update supply limits and restart activity, but no schedule has been announced. Meanwhile, users remain uncertain as platforms like Yei Finance and
Falcon Finance
also contend with unusual market behavior. Further analysis, including a comprehensive report on the situation and its repercussions, has been published in outlets such as
DeFi Planet
.
