Balancer Exploit and Stream Finance Collapse Highlight DeFi's Vulnerabilities

The decentralized finance (DeFi) landscape has faced significant challenges, marked by a major exploit involving Balancer, which resulted in the theft of over $116 million. Additionally, Stream Finance disclosed a $93 million loss, affecting stablecoins and triggering distrust within the ecosystem. These incidents underscore the need for enhanced security measures and transparency in the DeFi space.

Key Takeaways

Balancer suffered a major exploit with over $116 million stolen from liquidity pools due to a flaw in its smart contracts.
The hack has raised concerns about the effectiveness of multiple audits previously performed on Balancer's system.
Stream Finance also announced a $93 million loss tied to an external fund manager, impacting stablecoins and overall market liquidity.
A new risk ratings platform, Credora, has been launched to improve transparency within DeFi protocols.
The Ethereum Protocol Advocacy Alliance (EPAA) aims to enhance policy representation for Ethereum protocols.
Despite recent challenges, DeFi remains an active sector within the crypto market.

Balancer exploit and Stream contagion expose DeFi’s fragile core: Finance Redefined

Balancer’s Significant Security Breach

On Monday, Balancer experienced one of the largest exploits in decentralized finance (DeFi) history, losing over $116 million in staked Ether and liquidity pool tokens. The issue stemmed from a breakdown in access control within its smart contracts, enabling attackers to withdraw funds directly from liquidity pools. The initial loss was calculated at $70 million but escalated to $116 million, with liquid staking assets like Lido’s wstETH and StakeWise’s osETH being heavily impacted.

To recover the losses, Balancer proposed a 20% bounty to the perpetrators, while collaborating with law enforcement and blockchain forensic experts to track down the responsible parties. The community expressed disappointment over the situation, especially given that Balancer had undergone more than ten audits. According to Suhail Kakar, a developer relations lead at TAC Blockchain, the hack suggests substantial planning by a skilled attacker. Conor Grogan, a director at Coinbase, noted that the hacker might have connections to previous exploits.

On Thursday, following the incident, Balancer published a preliminary report, stating that the hack targeted its v2 Stable Pools and Composable Stable v5 pools through a sophisticated code exploit.

Source: Lookonchain

Stream Finance's Loss and Its Ripple Effects

In another setback for the DeFi ecosystem, Stream Finance announced a loss of $93 million linked to an external fund manager on Tuesday. This news resulted in stablecoin depeggings and liquidity freezes across the broader market. Analysts highlighted that the collapse of Stream Finance had far-reaching consequences, with over $284 million tied to loans and stablecoins associated with the protocol's synthetic assets like xUSD, xBTC, and xETH.

Several interconnected lending markets, including Euler, Solo, Morpho, and Gearbox, revealed exposure via stablecoin loops and vaults, escalating the contagion risks throughout the DeFi landscape. Protocols such as TelosC and Elixir were particularly affected, with Elixir having exposure equivalent to 65% of its stablecoin reserves. On Friday, Elixir ceased support for its synthetic stablecoin deUSD, processing redemptions for 80% of its holders, which led to the token losing its dollar peg.

Source: Elixir

Launch of DeFi Risk Ratings

RedStone, a modular oracle network, unveiled Credora, a risk ratings platform designed specifically for DeFi. This platform integrates real-time credit and collateral analytics into protocols, including Morpho and Spark. RedStone aims to enhance transparency by providing dynamic risk scoring and default probability data through APIs. This initiative comes in response to recent market volatility that resulted in $20 billion worth of positions being liquidated in October. The platform represents a shift toward creating a lower-risk environment within DeFi, emphasizing verifiable creditworthiness over speculative yields.

Ethereum Protocol Advocacy Alliance Formed

A new coalition of leading DeFi protocols, named the Ethereum Protocol Advocacy Alliance (EPAA), has been established to advocate for Ethereum’s interests in policy discussions in Washington. This alliance comprises popular protocols such as Aave, Uniswap, Lido, Curve, Spark, Aragon, and The Graph. The coalition aims to reduce the influence of centralized cryptocurrency companies in shaping US regulations and plans to engage policymakers on the technical realities of decentralized infrastructure. Supported by the Ethereum Foundation, the EPAA intends to create educational materials and provide technical expertise on issues affecting non-custodial systems and DeFi governance.

Ethereum protocols unveil new alliance. Source: EPAA

DeFi Activity in October

Despite an overall decline in Web3 engagement, DeFi remained one of the most active sectors in October, according to a report by DappRadar. DeFi accounted for 18.4% of decentralized application (DApp) activity. Although total value locked (TVL) in DeFi decreased by 6.3% to $221 billion and fell another 12% in early November to $193 million, protocols like Raydium, Pump.fun, and Jupiter Exchange continue to see robust user activity.

Industry Report October 2025. Source: DappRadar

Current DeFi Market Status

Recent data from Cointelegraph Markets Pro and TradingView indicate that most of the 100 largest cryptocurrencies by market capitalization ended the week on a downward trend. The Stables Labs USDX token experienced the most significant drop, plummeting over 69% over the week. This was closely followed by the Paparazzi Token (PAPARAZZI), which saw a 54% decline last week.

Total value locked in DeFi. Source: DefiLlama

Thank you for reading our overview of this week's most significant DeFi developments. Join us next Friday for more insights, stories, and educational materials about this rapidly evolving sector.