Last November 4th, Stream Finance disclosed that an external fund manager entrusted with managing part of its assets disclosed a loss of approximately $93 million of Stream’s funds (source). This led their yield bearing token xUSD to depeg and lose more than 90% of its value, exposing a number of protocols and liquidity pools to loses.
Many articles on the topic quickly summarised very well projects affected directly from this event, highlighting the first order risk exposure to xUSD. For example, in this article:
The result was a reflexive bank run that cascaded through Elixir's deUSD stablecoin (which lost 98% of value) and major lending protocols like Euler, Morpho, and Silo. (source)
But from all these articles, I was not able to understand what are the second or higher order risks and exposures unveiled from the Stream Finance’s announcement and depeg of November 4th.
To solve this mystery, I wrote a model and analysed some Pendle’s PT markets to answer exactly that: What tokens/projects could have a second order risk exposure to xUSD?
Second-order risks emerged beyond direct xUSD exposure
The November 4th’s xUSD depeg propagated through allocator behaviour, stressing PT markets with no fundamental exposure.
Major stablecoins like sUSDe also showed signs of stress
Even large and seemingly insulated ecosystems experienced abrupt APY distortions during the event window.
We attempted to bootstrap a yield curve from PT markets
We modelled a PT-based term structure captures market expectations and stress patterns similar to traditional fixed income.
The PT yield curve is an actionable risk-management tool
Our yield curve enables identification of overpriced, underpriced, or fairly priced PT tokens during volatile periods.
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Disclaimer: These notes are for educational purpose. ****The mentions of tokens in these notes should not be taken as advice or even criticism of their projects.
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