Balancer Hack Reveals Concealed Decentralized finance Scams As xUSD Depeg Poses Risk To Morpho And Euler

Withdraw your cash from Morpho and Euler! That’s the unfortunate message echoing through the community as Bitcoin, ETH, and various leading cryptocurrencies have sharply dropped to significant base level thresholds.

This alarming update raises more questions than solutions. Why? Morpho and Euler are renowned DeFi protocols collectively overseeing more than $1 billion in assets, at least prior to the Balancer incident on November 3.

Regardless of their size, one analyst on X believes the liquidity issues affecting Balancer-forked dapps, not only on ETH but also on the BNB Smart Chain and ETH layer-2s, are quite alarming.

Withdraw your funds from @MorphoLabs and @eulerfinance!

Here’s the reason.

They take your USDC and distribute it to insolvent protocols that play with leveraged loop scams like xUSD by Stream DeFi, which just lost $93 million of user assets.

The incentives are entirely misaligned. Curators on Morpho… pic.twitter.com/38fH6Nkczt

— Duo Nine YCC (@DU09BTC) November 4, 2025

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What’s Happening? A Decentralized finance Crisis?

If you’re a dedicated DeFi participant, engaging in providing market fluidity, borrowing, and lending, there’s ample reason for hesitation.

As per DefiLlama, the total value locked (TVL) across all Decentralized finance applications has decreased by nearly double digits within the last 24 hours. At the start of October, the DeFi TVL exceeded $170 billion; now, in less than a month, over $40 billion has been withdrawn from various protocols, particularly Ethereum and its layer-2s, including Base and Optimism.

Notably, even the most resilient amongst them, Aave, which ranks highest by TVL, has experienced a decline of over -27% in its deposits in just the last month. Lido has faced a similar fate, with its TVL contracting by the same percentage over the recent weeks. Ethena, following the depegging of its algorithmic stablecoin on October 10, has seen its TVL plummet by 38% in four weeks.

Interestingly, with Morpho, less than -10% of its assets have been redeemed in the past month.

(Source: DefiLlama)

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Is Morpho and Euler Playing with User Capital?

Interesting, isn’t it?

It makes little sense because Morpho and Euler, whose TVL has also decreased by over -47% in a month, are facing significant market fluidity troubles.

A commentator on X claims that these two protocols are struggling after the Stream Decentralized finance collapse due to their involvement in risky leveraging.

Allegedly, they have been utilizing user USDC deposits and allocating them to “insolvent” protocols like Stream Finance, which subsequently leverages loop scams through vehicles like xUSD.

DeFi is failing its users when curators behave like black boxes. The recent Beefy → Silo → Valarmore → xUSD situation is a testament to that.

FYI – I personally had funds and family savings in this “safe USDC vault on Arbitrum” highlighted on Beefy.

What we ended up with was 100% exposure to… pic.twitter.com/SNjuqHB4ye

— JohnnyTime (@RealJohnnyTime) November 4, 2025

It appears that xUSD is essentially defunct and may face a demise alongside other DeFi protocols.

Following the Balancer exploit, it took mere hours for xUSD to detether, dropping from $1.26 to as low as $0.24. However, that wasn’t the only revelation of that day.

Stream Finance, the creator of xUSD, reported a separate loss of approximately $93 million connected to an “external fund manager’s error” that led to the freezing of $160 million in user funds. Consequently, they were compelled to suspend all deposits and withdrawals.

Yesterday, an external fund manager managing Stream funds reported a rekt of roughly $93 million in Stream fund assets.

In response, Stream is working to engage Keith Miller and Joseph Cutler from the law firm Perkins Coie LLP to conduct a thorough…

— Stream Finance (@StreamDefi) November 4, 2025

It turns out that xUSD, which became virtually worthless after the depegging, was heavily leveraged as collateral in numerous vaults, including those of Morpho and Euler.

Now, Morpho and Euler, who promised returns of up to +18% on USDC, are now burdened with a significant quantity of no-value xUSD, while users rush to withdraw.

Was this a significant rug pull?

It appears so, as Stani Kulenchov from Aave warns that a potential “next Terra Luna moment” could be looming.

DeFi lending’s existence is based on trust. One of the biggest errors is attempting to draw comparisons between Decentralized finance lending and AMM pools since they operate in entirely different ways.

Lending only functions when participants trust the markets, believe collateral is reliable, and risk parameters are sound,…

— Stani.eth (@StaniKulechov) November 4, 2025

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The post Balancer Exploit Uncovers Hidden Decentralized finance Frauds As xUSD Depeg Threatens Morpho And Euler appeared first on 99Bitcoins.