DeFi’s November Nightmare Exposes Critical Risk For The Crypto Ecosystem

It could be labeled as crypto’s November Nightmare. On November 3, DeFi protocol Balancer was exploited for $128 million, while Stream Finance announced losses of $93 million, leading to the depegging of its xUSD stablecoin. The combined loss of over $220 million in a single day highlights the serious risks surrounding decentralized finance (DeFi). With over $150 billion in value locked up in DeFi, these events bring up significant questions about its long-term viability and systemic risks to the crypto ecosystem.

Experts pointed to vulnerabilities in smart contracts as the primary cause of the Balancer hack. “From a technical standpoint, these attacks stemmed from bugs in the smart contracts, which hackers exploited to drain liquidity pools,” explained Tim Sun, Senior Researcher at HashKey Group. This reveals a deeper challenge: even mature, audited protocols can be exposed to risks under complex contract structures.

Smart contracts, introduced with Ethereum in 2015, enable the autonomous functioning of DeFi but are still a relatively new technology. The sector is expected to grow by 10x over the next decade, reaching an estimated $15 billion by 2033.

Another critical factor is the concept of composability, in which multiple smart contracts work together like building blocks. These interdependencies, while providing strength, also amplify risks. As Mark Peng Zho from Mireafund pointed out, “DeFi’s composability, its biggest strength, also creates complex interdependencies that amplify risk.”

The response to the two incidents differed significantly. Balancer managed to recover and continue operations, while Stream Finance had to halt its activities due to insolvency. As Natalie Newson from CertiK observes, “In Balancer’s case, the protocol absorbed the impact and implemented a recovery plan. On the contrary, Stream’s insolvency spread its impact to several other platforms.”

When Stream temporarily suspended deposits and withdrawals, its xUSD stablecoin lost 77% of its value. Additionally, it was revealed that Stream had a deal with Elixir to redeem xUSD at a 1:1 ratio, raising concerns about transparency. This highlighted gaps in communication and governance within DeFi protocols.

The events underscore the need for more accountable composability in DeFi. Sid Sridhar, founder of Bima Labs, suggests solutions such as isolating risk at the vault level, using circuit breakers, implementing validator-governed insurance, and publishing live proofs of solvency.

The community had already flagged concerns over Stream's practices before the incident. For instance, one user noted on October 28, 2025, that Stream had 4.1x leverage on illiquid positions, which could be considered high-risk behavior. This lack of oversight and risk management could lead to more severe systemic issues in the future.

The aftermath of these exploits saw over $1 billion in outflows from the DeFi ecosystem, according to CoinShares data. Such incidents erode trust, trigger liquidity contractions, and attract opportunistic traders looking to profit on market instabilities. “While these events won’t end the DeFi sector, they will cause short-term damage like capital outflows and liquidity erosion,” commented HashKey’s Sun.

The discussion around 'low-risk DeFi', previously introduced by Ethereum’s Vitalik Buterin, gains new relevance. Real-time monitoring akin to traditional finance systems may become necessary to enhance security. As Bima’s Sridhar concluded, “DeFi will evolve to manage risk and settlement effectively, achieving in years what traditional finance took a century to master.”