DeFi Protocol Silo DAO Pursues Legal Recovery After Stream Finance Default
According to PANews, Silo DAO announced on November 5, 2025 that it will pursue legal action against Stream Finance. The decentralized lending protocol made this decision after Stream Finance failed to repay loans and redeem xUSD and xBTC tokens. Silo Labs released an official statement confirming the protocol's intention to recover funds through legal channels.
The action comes after some borrowers found themselves unable to recover their funds. Silo DAO stated that the case aims to recover outstanding amounts and set a precedent for protecting lenders' rights in decentralized finance. The protocol plans to collect lender information and balances, coordinate with legal counsel, and share legal costs transparently. All recovered funds will be distributed proportionally among affected lenders.
Silo DAO made clear that smart contracts alone cannot fully protect lenders' rights. Legal means serve as a necessary supplement to code-based protections in the DeFi space.
Root Cause and Scale of Loss
The legal action follows a $93 million loss disclosed by Stream Finance on November 4, 2025. CoinDesk reported that an external fund manager overseeing Stream Finance's funds disclosed the loss. The platform immediately suspended all deposits and withdrawals while launching its own investigation led by law firm Perkins Coie LLP.
Stream Finance operates as a yield-focused DeFi platform that allows users to deposit collateral and mint corresponding tokens like xUSD and xBTC. These tokens are then used as collateral across multiple lending markets. Analysts estimate that the total risk exposure could exceed $285 million. This figure includes outstanding loans and borrowings secured by Stream-related collateral across platforms such as Euler, Morpho, and Silo.
The loss triggered immediate market reactions. Stream's xUSD stablecoin lost its dollar peg, dropping to approximately $0.50. The depegging affected not only xUSD holders but also created uncertainty for xBTC and xETH token holders.
Broader DeFi Lending Implications
This case represents one of the first instances where a DeFi protocol actively pursues traditional legal remedies to recover funds. The move reflects growing recognition that decentralized systems require conventional legal frameworks for complete protection. DeFi lending protocols collectively secured over $78 billion in total value locked as of 2025, making up nearly 50% of all DeFi activity.
The incident raises questions about counterparty risk in decentralized finance. Stream Finance relied on external fund managers to handle assets when internal capacity was exceeded. This model enabled rapid growth but introduced dependencies that now sit at the center of the investigation. Other protocols may reassess their relationships with external managers following this event.
Legal uncertainty around smart contract enforcement has long deterred institutional investors from DeFi participation. According to Sygnum Bank, institutional capital remains hesitant despite improved infrastructure. The legal enforceability of crypto assets and smart contracts remains unclear. Their mandates do not allow exposure to unresolved legal or regulatory risk.
This case could establish important precedents for how DeFi disputes are resolved. Success in recovering funds through legal channels would demonstrate that code and law can work together in decentralized systems.
Further Reading
For those interested in decentralized governance structures and the tools that DAOs use to manage operations, our comprehensive DAO tooling guide provides detailed analysis of over 100 platforms. The guide covers governance frameworks, treasury management systems, and legal structuring options that help DAOs operate across traditional and blockchain-based systems.
