DeFi's Inherent Risks Prompt a Governance Overhaul

The Curve community has put forward a proposal to halt the allocation of

governance tokens to liquidity pools associated with Elixir, a DeFi protocol that recently became the focal point of a series of failures within the ecosystem. Initiated by community member LlamaRisk, the proposal aims to "deactivate all Elixir market gauges," thereby removing rewards for liquidity providers in the impacted pools. This action comes after Elixir decided to discontinue its synthetic stablecoin, deUSD, which lost 98% of its value following exposure to Stream Finance’s $93 million loss, as detailed in a .

Stream Finance, a significant entity in the Sui network, revealed last week that an external fund manager was responsible for a $93 million loss in user funds, setting off a domino effect among related protocols. The company, which issues the stablecoin-like xUSD, has paused both withdrawals and deposits and has hired Perkins Coie LLP to investigate. Lending protocols Suilend and Elixir, both of which had loans secured by Stream’s assets, responded quickly. Suilend suspended Elixir’s isolated market and called for immediate repayment, while Elixir started reducing its $68 million exposure to the now-depreciated

, according to a .

Elixir’s deUSD, introduced in July 2024 as a rival to Ethena’s USDe, lost almost all its value after 65% of its collateral was linked to Stream’s assets. When xUSD’s value dropped by 77%, deUSD’s peg to the dollar broke, leading Elixir to stop redemptions and work with , , and Compound to reimburse 80% of holders. However, Stream, which holds 90% of the remaining deUSD, has declined to repay its obligations, leaving Elixir facing both legal and operational challenges, as reported by .

This crisis has brought increased attention to DeFi’s dependence on non-transparent fund managers and interconnected stablecoins. Data from PeckShield indicates that 20 platforms were exploited in September 2025 alone, with losses exceeding $127 million—a 22% decrease from August, but still contributing to a yearly total of $3.1 billion. The Stream case highlights risks beyond technical vulnerabilities, as many in the community suspect internal mismanagement rather than a hack. “This is not merely a smart contract issue—it’s a failure in governance and oversight,” said Mikko Ohtamaa, co-founder of Trading Strategy, who pointed out accounting errors in simultaneous transactions, according to Cryptopolitan.

The repercussions reach further than just Elixir and Stream.

, another DeFi platform, recently experienced a $128 million exploit, although $19 million was recovered through on-chain efforts. Experts caution that such events, combined with leveraged positions and unclear collateral, may undermine confidence in synthetic assets and lending protocols, as noted in a .

Elixir’s recent moves have also led to legal threats. K3 Capital has warned of possible legal action, claiming that Elixir misrepresented its $68 million loan to Stream, effectively turning it into a “tokenized fund-of-funds” without sufficient risk disclosure. Blockchain data reviewed by Yields and More (YAM) suggests Stream’s actual exposure to deUSD was closer to $11 million, raising concerns about the accuracy of Elixir’s financial statements, according to a

.

The Curve proposal to end CRV rewards is intended to reduce further risk by discouraging liquidity in pools connected to unstable assets. Supporters believe this is essential for safeguarding the Curve platform, while opponents fear it could hasten Elixir’s downfall, leaving remaining investors with few options.

The ongoing

between Stream and Elixir highlights the vulnerability of DeFi’s interconnected systems. As platforms like Suilend and Elixir implement stricter risk measures—such as pausing isolated markets and requiring more collateral—industry experts stress the importance of clearer legal guidelines and greater transparency. “This incident should serve as a warning,” stated a Chainalysis report, referenced in a , noting that 70% of similar DeFi crises have been prevented by timely intervention.

With DeFi losses surpassing $3 billion in 2025, investors are increasingly seeking out protocols that have undergone audits and are diversifying their holdings. The outcome of the Curve community’s vote on the Elixir gauge proposal may set a new standard for how governance frameworks respond to systemic threats in a sector still confronting its own weaknesses.