In the flickering world of decentralized finance (DeFi), algorithms whisper promises of returns, and liquidity flows like a digital river through the blockchain ledger. Yet, in such an ecosystem, a subtle anomaly can create ripples, which then fade into silence.
On the evening of November 5, 2025, one of the star projects of the Sei network—Yei Finance—announced a temporary halt in operations due to an anomaly in its fastUSD market. This statement descended like a frost hitting a garden: it may not destroy, but it was enough to abruptly halt the entire harvest season.
By the next morning, the team released a reassuring statement confirming that user funds were completely safe and withdrawable, with the pause only affecting withdrawal operations during the debt repayment process.
The Rise of Sei and Its Fertile Soil
To understand the weight of Yei's suspension, one must first look back at the fertile soil of the Sei ecosystem—a Layer 1 blockchain born for high-frequency trading and lending.
Since its launch in 2023, Sei has focused on order book efficiency and rapid settlement, sometimes even surpassing Solana's speed in certain scenarios.
As of October 2025, Sei's total value locked (TVL) had surpassed $500 million, backed by tokenized liquidity funds from institutions like BlackRock and on-chain integrations from asset management giants like Apollo, driving massive capital inflows.
In this pulsating ecosystem, Yei Finance became a key hub. Its product matrix includes YeiLend (lending), YeiBridge (cross-chain liquidity), and YeiSwap (decentralized trading), achieving what is known as “yield stacking”—users can stack lending returns on top of providing liquidity.
This mechanism attracted a large number of speculators and “yield farmers,” pushing Yei's TVL to $92.87 million, with its native token CLO skyrocketing 250% on its launch day.
However, this prosperity concealed a complex web of dependencies: Yei's liquidity pools were filled with synthetic assets, such as sfastUSD—a yield-bearing stablecoin pegged to Elixir's deUSD and indirectly reliant on Stream Finance's XUSD.
In the web of DeFi, these protocols are interconnected nodes; a disturbance in one can ripple through the entire network.
The Starting Point of the Crisis Chain
It all began on November 4.
Stream Finance suffered a $93 million vulnerability attack, causing its stablecoin XUSD to depeg by over 60%, triggering a series of stablecoin price collapses.
The following evening, the price of fastUSD on Sei exhibited anomalies, with oracle quotes beginning to flicker erratically, threatening the pricing accuracy of collateral in the lending pools.
The Yei team promptly initiated an emergency pause at 02:58 (GMT) on November 5, calling it a “preventive measure.”
Soon after, market sentiment fluctuated, with SEI tokens dropping 5%, and users on community platforms began discussing the implications.
By 03:00 (GMT) on November 6, the official clarification revealed that the issue stemmed from the YeiLend main lending pool: approximately $8.6 million of USDC was collateralized with sfastUSD, and due to upstream volatility, the value of that collateral plummeted.
To avoid automatic liquidation triggering a chain reaction, the team decided to use reserve funds to fully repay the debt and paused withdrawals to execute repairs.
In just 24 hours, from alarm to reassurance, this reflected the “compressed time” of the DeFi world: crises and resolutions often unfold overnight, but it also exposed—when everything is governed by code, the immediacy of decision-making coexists with the unpredictability of risks.
The Fragile Collateral Network: The Hidden Dangers of DeFi
This incident revealed the structural fragility of the DeFi collateral system.
On the surface, these mechanisms ensure safety through over-collateralization, but when anchor assets destabilize, all safety assumptions collapse.
In YeiLend, users collateralize sfastUSD to borrow USDC, with a loan-to-value (LTV) ratio cap of about 70-80%. When the collateral value falls below 110%, the system automatically triggers liquidation.
However, the hacking incident at Stream caused the value of sfastUSD to drop by 20%, putting approximately $9 million in collateral at risk of being insufficient to support the $8.6 million loan.
Without intervention, automatic liquidation would trigger a liquidity collapse, potentially replicating the chain tragedy of the Terra 2022 collapse.
Yei's emergency pause mechanism was executed through CosmWasm smart contracts, cutting off this vicious cycle.
But this move also exposed deeper issues: “composability risk”—when the innovation of one protocol becomes a potential burden for another.
On Sei, about 30% of stablecoin trading volume comes from such derivative assets. This incident serves as a reminder:
Over-reliance on layered synthetic structures can turn minor anomalies into systemic crises.
Guardians in the Storm: The Team and Community
The Yei team's response is a model of crisis management in DeFi.
Unlike Elixir's 48-hour silence during the deUSD crisis (which led to a 40% evaporation of its TVL), Yei quickly released transparent explanations, promised full repayment, and published a recovery timeline.
This was not their first test. Back in October 2025, Yei faced a $2 million theft incident, ultimately compensating users in full. This act actually strengthened community trust.
On X and Discord, positive sentiment accounted for about 70%, with some KOLs calling it a “textbook example of damage control,” although some users still expressed concerns about the duration of the pause and leverage risks.
The heated discussions drove a 300% surge in Discord activity, transforming the help channel into a community co-creation think tank.
This also highlights the “human side” of DeFi: developers are no longer indifferent code workers but guardians between algorithms and markets—their transparent communication turns potential panic into collective trust.
Beyond the Ripples: A Systemic Test for Sei
Yei's pause also served as a stress test for the maturity of the Sei network.
As the second-largest protocol in the Sei ecosystem, Yei's suspension only triggered a 3% slight drop in SEI prices, with negligible capital outflow from decentralized exchanges, demonstrating Sei's diverse resilience.
However, the incident also exposed several risk points:
- An excessively high proportion of synthetic coins among collateral assets;
- Delays in multi-source oracles during extreme market conditions;
- The chain-level insurance mechanism remains inadequate, with limited coverage from entities like Nexus Mutual.
As of 2025, there have been over 15 similar suspension incidents in global DeFi, ranging from Aave's oracle freeze to Compound's liquidity crisis.
In the future, DeFi needs to move towards dynamic LTV adjustments, AI risk control models, and cross-ecosystem buffer funds.
For Sei, which is attracting institutional capital, this incident serves as a reminder:
To find a balance between “high throughput” and “high resilience,” moderate regulatory collaboration should be introduced, ensuring that speed no longer becomes a magnifier of fragility.
Forging a Resilient Future
Yei's experience provides a new template for risk governance in DeFi.
- Protocols could reduce the collateralization ratio of synthetic assets to below 50%;
- Introduce faster multi-source oracles (like Pythia);
- Implement a “tiered pause” mechanism, prioritizing the freezing of high-risk pools;
- At the Sei ecosystem level, establish a public resilience fund supported by transaction fees and veSEI staking.
Users should also adopt a more rational approach:
Prioritize the use of stable assets (like USDC), reduce leverage to below 3 times, and diversify investment risks.
These strategies can help DeFi transition from a “speculative casino” to an “engineered financial fortress”—where risks are no longer evaded but managed, absorbed, and utilized.
Conclusion: A Fable on the Chain
Ultimately, the episode of Yei Finance serves as a fable:
It reminds us that the brilliance and dangers of DeFi coexist, and behind every yield stacking lies the echo of systemic fragility.
As the protocol is set to resume operations (or restart as scheduled at dawn on November 7), this event will be etched in the eternal records of the blockchain.
In the long river of crypto history, these “pauses” are not failures but turning points—
Pushing the ecosystem from fragility to resilience.
For builders and believers, it whispers an eternal piece of advice:
In the cold precision of code, one must not only pursue efficiency but also forge resilience. Only then can fragility become the cornerstone of trust.
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