Balancer Hack Cascading Effect: Why Did XUSD Break the Buck?

By: blockbeats|2026/03/28 22:06:35
0
Share
copy
Original Article Author: Omer Goldberg, Chaos Labs
Original Article Translation: DeepTech TechFlow

Summary

Several hours after the DeFi space experienced widespread uncertainty due to a vulnerability attack on the multi-chain platform @Balancer, @berachain performed an emergency hard fork, and @SonicLabs froze the attacker's wallet.

Subsequently, the price of Stream Finance's xUSD stablecoin significantly deviated from its target range, exhibiting a clear de-pegging event.

Long-Standing Issues Resurface

The long-standing controversies surrounding leverage, oracle reliance, and Proof of Reserves (PoR) transparency once again took center stage.

This is precisely the case of a typical "reflexivity stress event" outlined in our "DeFi's Black Box/Treasury" article last Friday.

Balancer Hack Cascading Effect: Why Did XUSD Break the Buck?

What Happened? / Background

The Balancer v2 vulnerability emerged across multiple chains, and for a considerable amount of time, it was unclear which pools were affected, which networks or integrated protocols were directly exposed to risk.

Capital Panic in an Information Vacuum

In the information vacuum, capital's response was as expected: depositors rushed to withdraw liquidity from anywhere they perceived to be potentially impacted directly or indirectly, including Stream Finance.

Transparency Dispute

Stream Finance currently does not maintain a comprehensive transparency dashboard or Proof of Reserve; however, it does provide a link to the Debank Bundle to display its on-chain positions.

However, following the vulnerability outbreak, these modest disclosures failed to definitively address the risk exposure issue: the price of xUSD (Stream's yield-bearing USD product) dropped from the target price of $1.26 to $1.15, currently rebounding to $1.20, while users reported withdrawal suspensions.

Risks and Controversies of Stream Finance

Stream is an on-chain capital allocation platform that utilizes user funds to implement high-yield, high-risk investment strategies.

Its portfolio construction involves significant leverage to make the system more resilient under pressure. However, the protocol has recently come under public scrutiny due to controversies surrounding a recursive minting mechanism.

While the current situation does not directly indicate a liquidity crisis, it unveils the market's high sensitivity. When negative news emerges and confidence is questioned, the shift from "probably fine" to "immediately redeem" often occurs swiftly.

xUSD is used as collateral distributed across curated markets on multiple chains, including Euler, Morpho, and Silo, spanning ecosystems like Plasma, Arbitrum, and Plume.

The protocol itself carries significant risk exposure in these markets, with the largest exposure being $84 million USDT borrowed against xUSD collateral on Plasma.

Collateralization Mechanism and Risk Buffering

When the market price of xUSD falls below its book value, relevant positions are not immediately liquidated. This is because many markets do not peg the collateral's value to the spot AMM price but rely on hardcoded or "base value" oracle feeds that track assets' reported backing rather than current secondary market prices.

During calm periods, this design can help mitigate tail risk liquidation due to short-term volatility, especially in stable products. This is also why DeFi protocols outperformed centralized platforms during the liquidation wave on October 10.

However, this design can also swiftly turn price discovery into trust discovery: selecting a base (or hardcoded) oracle requires thorough due diligence, including the authenticity, stability, and risk characteristics of the asset backing.

In short, this mechanism only applies when full Proof of Reserve is available and redemption can be completed in a reasonable time frame. Otherwise, the risk is that the lender or depositor may ultimately bear the consequences of default.

Stress Test on Arbitrum

Using Arbitrum as an example, the current market price of the MEV Capital Curated xUSD Morpho Market has fallen below the LLTV (Minimum Loan-to-Value). If the anchoring price of xUSD cannot recover, in a scenario where the utilization reaches 100% and the borrowing rate soars to 88%, the market may further deteriorate.

We are not against base layer oracles; on the contrary, they play a crucial role in preventing unfair liquidations caused by short-term fluctuations. Similarly, we are not against tokenization or even centralized yield-bearing assets. However, we advocate for basic transparency and the adoption of modern, systematic, and professional risk management when deploying currency markets around these assets.

Curated Markets can be an engine for responsible growth, but they should not devolve into a race to sacrifice security and rationality for the sake of chasing yields.

If what is built is a "domino-like" complex structure, then the collapse should not be surprising when the first gust of wind blows. As the industry professionalizes and some yield products become more structured (but potentially more opaque to end-users), risk stakeholders must raise the bar.

Although we hope to eventually resolve the issues for affected users properly, this incident should serve as a wake-up call for the entire industry.

Original Article Link

You may also like

How xBubble Breaks the Deadlock in VC's Heavy Investment in the OPC Economy

DAPPOS launched xBubble, using the innovative model of "SOP is business" to solve the challenges of implementing AI Coding, allowing OPCs who do not understand technology to create a real business closed loop with zero threshold.

Dragonfly partner Haseeb: The fastest-growing companies in the future may all be stuck at 149 people

The pricing of large models is actually an "AI tax": it shackles large enterprises with computing power constraints, slows down automation, but turns subscriptions into a subsidy for small teams' innovative dividends. By capping the scale at under 149 people, startups can continuously experiment wit...

Morning Report | Former Ethereum Foundation researcher establishes Ethlabs; EU Parliament Economic Committee passes digital euro regulatory proposal

Overview of Important Market Events on June 23

Interview with NDV Founder Jason Huang: Popping the AI Bubble and the Myth of Microstrategy, Seeking the Ultimate Ace in the Crypto Market

Exclusive Interview with NDV Founder Jason Huang: MicroStrategy's coin selling triggered a stampede, BTC has fallen into a liquidity squeeze, and the current market has not yet bottomed out, patiently waiting for a "FTX-level" iconic panic event to clear.

Morning Report | The South Korean Financial Services Commission plans to expand the regulatory sandbox to include virtual assets; the parent company of the New York Stock Exchange, ICE, has reached a partnership with OKX to jointly establish a cryptocu...

Overview of Important Market Events on June 22

Exclusive Interview with Strategy CEO: Putting Aside the Sale of 32 BTC, the 60 Trillion AI Intelligence is the Ultimate Fate of Bitcoin

Strategy CEO responds for the first time to the controversy over the sale of 32 bitcoins: testing internal processes and breaking the "death spiral" rhetoric, maintaining long-term holding faith, and revealing how the 60 trillion AI intelligence will reshape the bitcoin trading landscape.

Popular coins

Latest Crypto News

Read more
iconiconiconiconiconiconicon
Customer Support:@weikecs
Business Cooperation:@weikecs
Quant Trading & MM:bd@weex.com
VIP Program:support@weex.com