Terra price

Author: cryptographic Compiled by: Block unicorn   preface Nature is ruthless, it has no emotion, no feeling, no attachment, it only goes through a never-ending test of whether this design is worth living. The same is true for financial markets, which over time will eliminate weak designs, weak architectures, and strategies that do not fully consider risk, and integrate those that have worked. This is the essence of natural selection – a ruthless, constant test that ensures the survival of the fittest. DeFi is no exception, and after years of experimentation and thousands of protocols, a pattern has become evident: each extinction event is not so much a "black swan" event as a natural selection to weed out the weak, ensuring that only the strong survive. Aave is a prime example. Despite multiple industry extinction events such as the Luna crash, FTX, and the misuse of customer deposits by the most prominent effective altruists in crypto, the Aave lending market still has tens of billions of dollars in deposits, with v3 alone consistently leading DeFi lending TVL. Aave's survival and dominance are not accidental, but rather a compound return of conservative parameters and a culture that assumes counterparties will fail and plans accordingly. This leads to Stream Finance and the latest round of natural selection. Stream Finance Stream Finance positions itself as a yield primitive, issuing synthetic assets (xUSD, xBTC, xETH) that users can mint with deposits and then deploy newly minted synthetic assets into DeFi. These synthetic tokens are widely used as collateral and embedded in lending markets and select vaults. Stream was forced to suspend deposits and withdrawals when external managers overseeing some of Stream's assets reported a loss of $93 million, xUSD was depegged from the US dollar, and YAM has linked $285 million in loans and stablecoin exposure to Stream-related collateral, covering derivative stablecoins such as Euler, Silo, Morpho, and deUSD. This is not a failure of smart contracts, but an architectural and design failure due to a lack of transparency and: Funds are entrusted to external managers xAssets are used as collateral in several venues A select "segregated" vault consolidates these xAssets, along with aggressive re-staking loops that make multiple claims on the same underlying asset. What was supposed to be a completely isolated system was actually tightly coupled. When Stream's delegated funds disappear and xUSD is depegged, the losses are not kept isolated but spread to various markets and platforms built on the same underlying collateral. The original independent vault + custodian model has failed, and a single point of failure that should have been isolated has evolved into a network-wide problem. Segregated vault + custodian mode Stream exposes the current vulnerability of this segregated vault + custodian model, which works as follows: A permissionless lending primitive (like MorphoLabs) as the base layer. Above it is a custody layer where custodians operate "segregated" vaults, set parameters, and promote "curated" yield paths. In theory, each vault should have a separate layer of isolation, custodians should be experts with the necessary experience and domain knowledge, and finally, risk should be transparent and modular. However, this is not the case, and Stream's bankruptcy exposes three major flaws: Synthetic assets carry issuer risk: Accepting segregated vaults like xUSD exposes oneself to upstream risk at the issuer level. Incentive misalignment: Custodians compete through APY and TVL, higher APY = higher market share = higher custodian rewards, and in the absence of an initial loss (custodian self-interest tied to market interest), all downside risk is borne by liquidity providers. Recycling and re-staking: The same synthetic asset is reused and placed as collateral in the lending market, packaged into another stable portfolio of assets, and then recirculated through a selectively managed vault, resulting in multiple claims against the same underlying collateral. In short, during times of stress, redemptions can exceed available collateral, and the "segregated vault" suddenly becomes no longer segregated. natural selection Nature is the best teacher, and its lesson is clear: isolation based on common interests is an illusion. Stream Finance is the result of natural selection at its best, eliminating weak designs that prioritize growth over resilience, yield over transparency, and market share over survival. There is nothing wrong with the segregated vault + custodian model itself, but for now, it can't pass the most basic test...... Can it survive? Can it survive when the issuer fails, collateral evaporates, and chain claims reveal that "isolation" is just a marketing tool? Aave survived because it assumed failure; Stream crashed because it assumed trust. The market, as always, expresses its views through the brutal laws of natural selection – the laws of what works and what doesn't work. Protocols that externalize risk, leverage stacking with opaque collateral, and pursue APRs rather than viability, have no second chance, they will be liquidated, and their total value locked will be redistributed to those that actually work. DeFi no longer needs endless touting of yield mechanisms, it requires more rigorous design, more transparent collateral, and more risk for decision-makers. The agreements that survive will be those that can handle counterparty defaults, assume market pressures rather than stability, and turn conservatism into dominance. Nature doesn't care about your TVL or your APY, it only cares about whether your design can survive the next extinction event. And the next time has come.   Recommended reading: $1 billion in stablecoins evaporate, the truth behind DeFi explosions? MMT Short Squeeze Event Review: A well-designed money game Under the savage harvest, who is looking forward to the next COAI?   Click to learn more about ChainCatcher's job openings