Why the continued failure of decentralized stablecoins is so important
Decentralized stablecoins keep breaking, and that’s exactly why they matter. Each failure is a stress test in public — a necessary part of building financial infrastructure that doesn’t rely on banks, governments, or permission.
The November Balancer hack was a full-scale, slow-motion detonation that exposed, again, how brittle decentralized stablecoins still are when the scaffolding starts to wobble.
Balancer lost an estimated $128 million after attackers drained composable stable pools, triggering a domino effect that depegged, destabilized, and in some cases outright dismantled several DeFi-native stablecoins. The implosions weren’t dramatic by Luna/UST standards, but they were devastating in their own way: creeping, self-reinforcing, and contagious.
Stable Labs’ USDX lost liquidity after a wave of redemptions. Elixir’s deUSD fell far enough off-peg to be shut down. Stream Finance’s xUSD was pulled into a liquidity vortex that ended with a $93 million loss and $285 million in unpaid protocol debt. “Delta-neutral” hedging strategies proved anything but.
The trust layer fractures in public
Most of these tokens were stitched into a tightly wound ecosystem of derivative-backed instruments, cross-collateralized vaults, and auto-rebalancing smart contracts. All it took was the sudden disappearance of Balancer as a core venue and liquidity shelling out across protocols like began.
The exits happened fast, portfolios froze, and oracle feeds became unreliable. Hedging broke down as price movements fed on themselves. Thin liquidity widened spreads. Traders with exposure to the wrong stablecoins were forced to dump otherwise healthy assets to cover positions.
The pattern of DeFi failure is getting harder to ignore. Structural weaknesses, including staple components such as oracle reliance, reflexive collateral loops, and the overuse of correlated assets – keep coming back into play. They’re the ingredients for a kind of stress test that plays out live, without a circuit breaker or a lender of last resort. And each time it happens, the market’s response becomes more predictable: rotate capital out of the risky experiments and into the clean, boring permissioned pipes.
This is the paradox of Open Money. The more public and composable the system, the more fragile its edges. When something breaks, it breaks hard. But the fix isn’t to walk away. It’s to build systems that can absorb those shocks, not just obscure them.
Fragility as a visible feature
You could argue the Balancer hack has done more for risk discovery than a dozen audits. It forced stablecoin protocols to contend with real-world chaos: imperfect data, liquidity imbalances, and correlated failures. And yes, it broke a few things along the way. But that’s what open systems are for.
In traditional finance, these kinds of failures don’t happen in the open — or they’re papered over with emergency liquidity and central bank backstops. That’s not available in DeFi. So what you get instead is an ecosystem that breaks in real time, with everyone watching.
That visibility is the point. A decentralized stablecoin that can only survive under ideal conditions is not much of a stablecoin. But neither is one that simply wraps a dollar and calls it trustless.
We’re seeing a hard fork in what “stable” means. On one side, permissioned assets like USDC and Tether continue to consolidate market share. They’re legally backed, auditable, and have clearly defined redemption paths. They're also entirely dependent on the traditional financial system.
On the other side is the messy world of DeFi-native stablecoins — crvUSD, GHO, USDX, USDM, and a rotating cast of others. These are harder to scale, harder to trust, and far more brittle. But they’re also where innovation happens. They’re experiments in creating money that works without a bank, a government, or a court order.
The cost of resilience is failure
The repeated crises in decentralized stablecoins aren’t just embarrassing hacks and the related fallout. They’re part of the cost of building a system that doesn’t rely on centralized trust.
There are real design lessons to be drawn from this latest blow-up. Some are technical — avoid excessive reliance on a single venue like Balancer, better manage collateral risk, tighten oracle tolerances. But the bigger lesson is about architecture: systems that want to be stable need to be anti-fragile. That means fewer correlated dependencies, more modularity, and better planning for liquidity exits.
Stablecoin designers will keep tweaking. Some will double down on exotic collateral, others will try new models, and some will quietly exit stage left. But the category will persist, because the need it solves — permissionless value storage and transfer — is still unsolved.
Daniel McGlynn
What fails in public can be rebuilt in public
It’s tempting to frame the Balancer hack as another reason to write off DeFi stablecoins as a failed experiment. But that would be a category error. These aren’t finished products, they’re open-source monetary protocols being tested in real time.
You don’t build trust by promising nothing will go wrong. You build trust by surviving what goes wrong and getting stronger in the process.
That’s why this sector still matters. Because we’ve already seen what centralized stablecoins look like when regulators and counterparties start closing doors. The alternative can’t just be another walled garden. It has to be something more robust, more public, and more resistant to political choke points.
That doesn’t happen without failures. But it also doesn’t happen without persistence.
Open Money means public risk
If the pattern holds, capital will continue flowing toward the regulated, fiat-backed stablecoins. They’re easier to explain, and safer in the short run. But they don’t move the architecture forward.
The Open Money thesis has always been about building financial infrastructure that’s more transparent, more inclusive, and less reliant on permission. Decentralized stablecoins are part of that infrastructure — not because they’re perfect, but because they’re testable. And this month, they were tested again.