Decentralized crypto lending platform Compound has resumed withdrawals from two out of three of its stablecoin markets where withdrawals had been paused since yesterday. Withdrawals were temporarily paused after risk manager Gauntlet flagged a liquidity crunch tied to institutional liquidity firm Elixir’s deUSD ecosystem.
To prevent potential bad debt, Gauntlet had recommended that Compound institute a temporary emergency pause on withdrawals from the three markets where deUSD and sdUSD are accepted as collateral, namely USDC, USDS, and USDT on Ethereum mainnet.
In a fresh comment on the recommendations from Gauntlet originally posted on Nov. 4, Gauntlet said that Ethereum USDC and USDS market withdrawals were unpaused, “allowing users to resume normal activity.” As for USDT, the comment suggests that users transfer more USDT into the affected market in order “fully cover any temporary reserve gap and provide an additional safety buffer.”
The pause was proposed as a precaution while voting continued on Gauntlet’s separate risk parameter governance proposal, which passed the evening of Nov. 4, and was executed on-chain around 6 p.m. UTC today.
The Pause
In its original recommendation post, Gauntlet explained the reason for the pause, saying that Elixir’s synthetic dollar asset deUSD and its staked counterpart sdeUSD were facing a liquidity crunch, with sdeUSD falling to $0.86 while the protocol’s oracle was still showing the price at $1.06. Per Gauntlet, the price discrepancy is “considered a vulnerability” as it could let borrowers take on more than the market could actually back.
Compound implemented the halt, blocking new borrows and withdrawals while still allowing users to add liquidity, repay loans, or post new collateral.
Compound currently has $2.26 billion locked across its on-chain lending markets, per data from DefiLlama, making it the seventh-largest lending protocol in DeFi
Elixir deUSD Depegs
Meanwhile, around 3 p.m. UTC today, deUSD dropped sharply from around $1 to $0.50, before quickly falling further over the past few hours to approach zero.
Elixir’s website describes deUSD as “the rails for institutional assets to natively enter DeFi,” saying the token is used exclusively by Securitize, and the “gateway for asset holders” in BlackRock, Hamilton Lane and Apollo funds.
Elixir’s deUSD page. Source: Elixir
At press time, the price of deUSD is around $0.028, as it fails to regain its dollar price-peg.
Elixir deUSD 24-hour price chart. Source: CoinGecko
It’s All Connected to Stream
The underlying shock traces back to Stream Finance, the yield optimization protocol that collapsed on Nov. 4, as its own synthetic dollar token, xUSD, collapsed to about $0.17.
As part of a recursive minting agreement with Stream, Elixir reportedly had loaned roughly $68 million to the platform, while accepting xUSD as collateral. In an X post on Nov. 3, before Stream’s full collapse but with concerns already circulating, Elixir said it had “full redemption rights at $1 with Stream for its lending position.”
When Stream disclosed more than $90 million in losses, deUSD and sdeUSD took a hit, triggering cascading stress beyond Compound, and, as of just a few hours ago, resulting in deUSD’s full-blown collapse.
Meanwhile, the price of Compound’s COMP started falling on Nov. 3, as broader markets slumped, but is flat over the past 24 hours.
Ripple Effect
The turmoil also rippled into fastUSD, a synthetic dollar-pegged token backed by deUSD and used across multiple protocols, including Yei Finance, currently the second-largest protocol on the Sei network by TVL.
In a Nov. 5 post on X, Yei Finance said it temporarily paused its protocol, pointing to “the ongoing fastUSD market situation.” The team later said it would repay about $8.6 million in USDC borrowed against staked fastUSD and confirmed that “all user funds on Yei remain fully solvent and will be 100% withdrawable.”
For Yei Finance, the pause comes just a few weeks after it launched its CLO token on Sei and BNB Chain. At that time, on Oct. 14, Yei Finance had nearly $230 million in TVL, representing over 47% of Sei’s DeFi liquidity.
However, as of press time that figure has dropped to $82.6 million.
