TL;DR
Compound Finance temporarily paused Ethereum lending markets after a liquidity crisis triggered by Elixir’s stablecoins.
The move, recommended by Gauntlet, aimed to contain systemic contagion and affected borrowing and withdrawals in USDC, USDS, and USDT.
Stream Finance reported a $93 million loss due to its exposure to Elixir, reigniting debate over DeFi’s reliance on low-liquidity stablecoins.
Compound Finance temporarily suspended its main lending markets on Ethereum, including USDC, USDS, and USDT, following a liquidity crunch caused by Elixir’s stablecoins. The decision came under the recommendation of Gauntlet, a risk management firm specializing in DeFi, which had warned about severe imbalances in the deUSD and sdeUSD markets.
The protocol executed an immediate pause to contain potential contagion and stabilize the system. According to Gauntlet’s report, Compound’s exposure to Elixir-linked assets increased the risk of systemic losses, as part of its liquidity relied on collateral tied to those stablecoins. The measure temporarily halted borrowing and withdrawals for USDC, USDS, and USDT on the Ethereum network.
The most visible impact occurred at Stream Finance, which reported a $93 million loss related to its holdings in Elixir assets. The episode has reignited discussion about DeFi protocols’ dependency on emerging stablecoins that lack sufficient liquidity to handle large-scale withdrawals. Gauntlet recommended maintaining the suspension until market stability was restored, a proposal that Compound’s governance approved immediately.
COMPOUND WILL REOPEN MARKETS GRADUALLY
Withdrawals for USDC and USDS resumed yesterday after partial liquidity recovery in the affected markets was confirmed. Compound stated that the reopening will proceed gradually, prioritizing system safety and ongoing reserve assessment. The goal is to fully restore operations without compromising the protocol’s solvency.
DeFi’s capacity to respond to localized liquidity crises has once again been tested. Gauntlet had previously intervened in similar situations to mitigate systemic risk, serving as a key technical advisor in decentralized governance protocols. Still, the fragility of Elixir’s stablecoins exposed the risks of integrating such dependency-prone assets into the DeFi ecosystem
