The decentralized finance market continues to run hot, with TelosC and Euler allegedly experiencing liquidity drain. According to PeckShield, several TelosC vaults launched on the Euler platform have reached 100% utilization.
Simply put, all funds have already been lent out, and liquidity providers are currently unable to withdraw their money.
Euler is a decentralized lending protocol, sort of a "DeFi bank," where users deposit tokens and receive interest, while others borrow them against collateral. TelosC is one of the "risk curators" within Euler, managing separate liquidity vaults where it sets the rules for loans and returns.
Several assets are under potential attack at once:
- WETH: $5.5 million.
- USDC: $14.3 million.
- WBTC: $7.3 million.
At the same time, the yield for providers is only 0.18% per annum, which seems suspiciously low. The system does not encourage borrowers to repay their debts, and liquidity may remain "locked" for a long time.
If part of the liquidity is indeed "stuck," the DeFi ecosystem risks a new chain reaction: rising borrowing rates, liquidity shortages in related pools, possible liquidations of positions and a collapse in the value of synthetic tokens.
DeFi contagion in 2025
Analysts believe that the situation may be related to the aftermath of the collapse of Stream Finance, whose assets interacted with TelosC and other DeFi protocols.
For those who missed the news, DeFi protocol Stream Finance temporarily suspended all withdrawal and deposit operations earlier this week after the external fund manager controlling its assets reported an exploit and losses of about $93 million.
The potential DeFi contagion may also be fueled by Balancer's $128 million exploit and xUSD collapse from $1 to $0.35. One may call it a reflexivity loop — fear of protocol risk driving withdrawals, which materializes an illiquid run.
Dan Burgin
Vladislav Sopov
U.Today Editorial Team