STABLES ARE NOT STABLE

Summary from the TLDR Crypto newsletter

Stream Finance's collapse in November exposed recursive lending fraud where $1.9 million USDC collateral backed $14.5 million xUSD through systematic fractional reserve expansion, triggering $93 million direct losses and $285 million cross-protocol contagion. The circular dependency with Elixir's deUSD amplified the cascade, with Stream holding 90% of deUSD supply while Elixir concentrated 65% of reserves in loans to Stream via private Morpho vaults, causing deUSD to collapse 98%. Contagion spread to TelosC with $123.64 million exposure, MEV Capital with $25.42 million, and Euler with $137 million bad debt, while yield-bearing stablecoins lost 40-50% TVL industry-wide despite maintaining pegs as users fled indiscriminately. DeFi's fundamental pattern of unsustainable yields, circular dependencies, and oracle failures remains structurally unchanged across five years of documented failures.