Elixir deUSD / Morpho Vault Incident Postmortem (November 2025)

Incident Summary

Date of Collapse — Early November 2025 (deUSD depegged ~November 4–5, 2025).
Root Cause — Elixir's deUSD (synthetic USD stablecoin) was heavily exposed to Stream Finance (a yield aggregator that suffered a $93M shortfall due to bad investments/off-chain manager issues). Stream held ~90% of deUSD supply ($75M) and defaulted on repayments.
Impact on Morpho — The MEV Capital-curated Ethereum USDC Vault (and to a lesser extent Arbitrum vaults) had allocated capital to the sdeUSD/USDC lending market on Morpho (sdeUSD = staked/derivative version of deUSD).
- When sdeUSD collapsed to ~0 value, the market became toxic.
- Vault realized ~3.6% bad debt (permanent loss socialized across all vault depositors via reduced share price).
- Vault TVL at delisting: Significant (exact figures varied, but bad debt equated to millions in USDC equivalent loss for the vault).
Contagion Scope — Isolated to vaults with Elixir/Stream exposure. Most Morpho vaults unaffected. No Morpho protocol exploit — this was a curator allocation risk (like a fund manager picking a bad investment).

Timeline

Date (2025)	Event
Early Nov	Stream Finance halts withdrawals, reveals massive shortfall. deUSD starts depegging.
Nov 6	Elixir announces: Processed 80% direct deUSD redemptions 1:1 to USDC (non-Stream holders). Snapshot taken of remaining deUSD/sdeUSD balances. Mint/redeem paused; deUSD to be sunset. Claims portal coming soon.
Nov 6–7	Elixir launches USDC claims portal for all remaining deUSD/sdeUSD holders (including lending market suppliers like Morpho vaults). Explicitly covers "affected LPs in AMM pools or lending markets".
Nov 12	MEV Capital announces delisting of sdeUSD/USDC market from Ethereum USDC Vault → 3.6% bad debt realized. No further Elixir exposure.
Nov 13	Similar delisting on Arbitrum USDC Vault (Stream xUSD exposure) → ~600k USDC loss on ~5M remaining allocation.
Mid-Nov onward	Ongoing coordination for Stream liquidations/recoveries. Most claims processed via Elixir portal.

What Went Wrong (Key Risks Realized)

Over-concentration — Elixir lent ~65–90% of deUSD backing to Stream via Morpho/Euler/Compound markets for yield.
Collateral Risk — Stream used leveraged loops with weak/under-collateralized assets (xUSD became worthless).
Curated Vault Model — Depositors delegate allocation decisions to professional curators (MEV Capital) but bear full downside risk (disclosed in vault docs). No curator skin-in-the-game requirement beyond reputation/performance fees.
No Automatic Bailout — Morpho vaults are permissionless/on-chain funds; bad allocations = depositor losses (socialized fairly via share price).

Mitigations & Response

Morpho Side:
- Immediate market delisting via standard emergency process (supply cap → 0, timelock, removal).
- Contained the issue — vault continues operating with reallocated capital to healthy markets.
Elixir Side:
- Full 1:1 USDC restitution program for all deUSD/sdeUSD holders (including Morpho lenders).
- Claims portal processed majority of redemptions quickly.
- Working with Morpho, Euler, Compound, and curators to liquidate Stream positions and distribute any additional recoveries.
Net Outcome for Most Users → Compensation from Elixir materially reduced (or eliminated) the effective bad debt in affected vaults. The 3.6% loss was the "uncompensated gap" at the time of delisting, but many reports indicate further offsets via claims.

Who Is Assisting with Fund Recovery (for MEV Capital Vault Depositors)

Party	Role in Recovery	Contact / Status (as of Nov 19, 2025)
Elixir Team	Primary compensator — ran the USDC claims portal explicitly covering Morpho sdeUSD lenders. Processed ~80–100% of eligible claims. Coordinating Stream liquidations.	Claims portal was live Nov 7+. Check their official X (@elixirprotocol) or Discord for any late updates. Most claims already paid.
MEV Capital	Vault curator — actively coordinating with Elixir & other protocols on creditor recoveries. Publicly stated they are "working with relevant parties" and will update depositors. No out-of-pocket bailout, but facilitating distribution.	Follow @MEVCapital on X. Their Nov 12 post: "MEV Capital is currently working with relevant parties to address the situation on Elixir creditors as it evolves." Check vault page on app.morpho.org for curator notes.
Morpho Protocol	Provided delisting tools; no direct compensation (vaults are curator-managed).	No further action needed from Morpho core team.
Other Protocols (Euler, Compound)	Joint efforts to unwind Stream positions and repay loans.	Background coordination via Elixir/MEV.