The Decentralized Finance borrowing structure suspended redemptions for three stablecoin venues after risk overseer Gauntlet signaled a capital crunch within Elixir’s deUSD digital asset.
The autonomous digital asset credit system Compound has reinstated redemptions from two of its three stablecoin venues where outflows were halted since the previous day. Redemptions were momentarily suspended after risk monitor Gauntlet indicated a capital deficit linked to corporate liquidity entity Elixir’s deUSD environment.
To avert prospective defaults, Gauntlet had counseled that Compound implement a short-term urgent cessation on redemptions from the three venues where deUSD and sdUSD are taken as security, specifically USDC, USDS, and USDT on the Ethereum mainnet.
In a recent pronouncement on the proposals from Gauntlet, initially published on November 4, Gauntlet communicated that Ethereum USDC and USDS market redemptions were reactivated, “allowing clients to recommence typical operations.” Regarding USDT, the statement advises that users deposit more USDT into the impacted venue in order to “completely compensate for any transient reserve shortfall and furnish an extra security cushion.”
The cessation was suggested as a safeguard while balloting persisted on Gauntlet’s separate danger metric oversight proposal, which received approval the evening of November 4, and was carried out on-chain near 6 p.m. UTC today.
A Temporary Pause
In its initial proposal briefing, Gauntlet clarified the rationale for the stoppage, stating that Elixir’s fabricated dollar holding deUSD and its staked equivalent sdeUSD experienced a capital deficit, with sdeUSD declining to $0.86$ while the structure’s data feed still displayed the value at $1.06$. According to Gauntlet, the price variance is deemed a “security flaw” as it might permit debtors to amass greater funds than the exchange could reliably underwrite.
Compound enacted the stoppage, preventing novel borrowings and redemptions while nonetheless authorizing clients to furnish liquidity, remunerate credit, or tender fresh security.
Compound presently holds $2.26 billion sequestered across its blockchain borrowing venues, according to metrics from DefiLlama, establishing it as the seventh-biggest credit structure in Decentralized Finance.
Elixir’s deUSD Loses Dollar Peg
Concurrently, near 3 p.m. UTC today, deUSD plunged steeply from approximately $1$ to $0.50, before swiftly decreasing further across the last several hours to near null.
Elixir’s web portal delineates deUSD as “the infrastructure enabling corporate holdings to intrinsically integrate Decentralized Finance,” stating the digital coin is employed solely by Securitize, and the “entry point for asset proprietors” in BlackRock, Hamilton Lane, and Apollo investments.
At publication moment, the valuation of deUSD is situated around $0.028$, as it cannot re-establish its dollar rate parity.
Everything Ties Back to Stream
The root disturbance stems from Stream Finance, the return enhancement structure that imploded on November 4, as its proprietary fabricated dollar coin, xUSD, tumbled to nearly $0.17.
As part of a repetitive creation covenant with Stream, Elixir allegedly furnished approximately $68$ million to the platform, simultaneously taking xUSD as security. In an X post on November 3, preceding Stream’s complete failure but with apprehensions already spreading, Elixir communicated it possessed “total reimbursement entitlements at $1$ with Stream for its financing stake.”
When Stream revealed in excess of $90$ million in impairments, deUSD and sdeUSD suffered a setback, initiating successive pressure extending beyond Compound, and, as of barely a few hours prior, culminating in deUSD’s total downfall.
Concurrently, the valuation of Compound’s COMP began declining on November 3, as wider exchanges plummeted, but remains unchanged across the preceding day.
The Ripple Effect Unfolds
The commotion likewise spread into fastUSD, a fabricated dollar-pegged coin sustained by deUSD and utilized throughout numerous structures, including Yei Finance, presently the second-biggest structure on the Sei network by Total Value Locked.
In a November 5 update via X, Yei Finance stated it momentarily suspended its structure, referencing “the developing fastUSD exchange circumstance.” The group subsequently announced it would reimburse approximately $8.6$ million in USDC secured against deposited fastUSD and verified that “all client capital on Yei remains entirely sound and will be wholly extractable.”
For Yei Finance, the cessation transpired merely a few fortnights after it debuted its CLO digital asset on Sei and BNB Chain. At that juncture, on October 14, Yei Finance maintained nearly $230$ million in Total Value Locked, constituting beyond 47% of Sei’s Decentralized Finance solvency.
Nevertheless, as of publication moment, that metric has fallen to $82.6$ million.
