Hotcoin Research | Behind the Stablecoin Chain Crashes: Responsibility, Risks, and the Future of the Curator Model

I. Introduction

Triggered by the collapse of Stream Finance’s xUSD last week, stablecoins such as deUSD and USDX subsequently depegged, setting off a chain reaction of crashes across DeFi lending markets. The Curator model played a catalytic role in this crisis, drawing widespread debate and scrutiny.

Over the past year, Curators have expanded rapidly, with assets under management once surpassing USD 10 billion. Because Curators operate across major lending protocols, a single failure can ripple through the entire DeFi lending landscape. The meltdown that began with xUSD, then spread to deUSD and later USDX, illustrated this clearly — one domino after another fell, eroding user confidence and accelerating capital flight. Investors are now asking: Does the Curator model reduce risk, or does it centralize and amplify it?

This report examines Curators’ functions, business models, leading players, their performance during the crisis, and the structural risks exposed by this event. It also explores future directions for Curators and the broader lending ecosystem to help investors form a comprehensive understanding.

II. The Role of Curators

A Curator is an external strategy manager within DeFi lending protocols. They design and operate strategy vaults that package complex yield strategies into simple, one-click products. On protocols like Morpho or Euler, users select vaults created by different Curators, who then control strategy execution — asset allocation, risk parameters, rebalancing rules, and withdrawal logic — through predefined smart contract interfaces.

Unlike centralized asset managers, Curators cannot freely move user funds; smart-contract safeguards and predefined logic restrict their authority.

The Curator model aims to leverage professional teams for risk-managed yield generation, improving capital efficiency and lending market stability. By offering yields higher than traditional lending pools such as Aave, Curators attract substantial inflows. According to DefiLlama, TVL in Curator-managed vaults exceeded USD 10 billion in early November 2025 before falling to around USD 7 billion during panic withdrawals.

In this fund-manager model, lending protocols function as platforms that outsource risk management and capital allocation to Curators. While this expands user access to high-yield opportunities, it also shifts part of the risk surface from pure code to human decision-making.

III. Curator Revenue Model

To understand the risks within the Curator model, one must examine its incentive structure. Curators typically earn from:

• Performance Fees: A share of net profits, such as the 5% fee on Gauntlet’s USDT vault on Morpho
• Management Fees: Annualized fees based on assets under management
• Protocol Incentives: Token rewards offered by lending protocols to encourage new strategy creation
• Brand Monetization: Established Curators may launch their own products or tokens

Larger vaults and higher strategy yields directly translate into higher Curator revenue. This creates intense competition around APY, pushing Curators toward higher — and often riskier — yields.

This structure introduces moral hazard: Curators capture the upside, while losses fall on users. As Curators chase returns, risk controls may erode, particularly when users focus on headline yields without understanding the underlying exposures.

IV. Leading Curators Overview

A number of major Curators now operate across the DeFi lending landscape, collectively managing billions in assets. Below is an overview of representative top Curators, including their backgrounds, AUM, risk profiles, and their performance during the recent turmoil.

1. Gauntlet

Founded in 2018 by quantitative finance expert Tarun Chitra, Gauntlet is one of the earliest teams specializing in DeFi risk management. The firm is known for its data-driven approach and has long provided risk-parameter optimization for Aave and Compound.

As a Curator, Gauntlet emphasizes conservative risk controls and automated monitoring. Its vaults span Ethereum, Base, Solana, and more, with total TVL exceeding USD 2 billion. Most of its revenue comes from annualized management fees, estimated at roughly USD 7.2 million per year.

During the deUSD depeg, Gauntlet enabled Compound to freeze withdrawals three hours earlier than manual intervention would have, reducing losses by an estimated USD 120 million — a strong demonstration of its crisis-response capabilities.

2. Steakhouse Financial

Founded in 2020, Steakhouse played a major role in helping MakerDAO onboard U.S. Treasuries and private credit, contributing significantly to the rise of on-chain RWA. Built on Morpho infrastructure, its strategies dynamically rebalance across lending markets to optimize yield while maintaining institutional-grade risk controls.

Steakhouse manages around USD 1.5 billion across 48 vaults on Ethereum, Base, and Polygon, serving major partners such as Coinbase, Lido, and Ethena.

During the xUSD crisis, Steakhouse had zero exposure to Stream’s products — reflecting its conservative risk posture.

3. MEV Capital

MEV Capital specializes in quantitative DeFi strategies, including MEV-enhanced yield and structured leverage. At its peak, it managed nearly USD 1 billion; its TVL has since declined to around USD 400 million.

MEV Capital became a focal point in the recent crisis as a key Curator partner for Stream. Its strategies relied on high leverage, option hedging, and multi-layered looped lending. When Stream unraveled, MEV’s high-risk and tightly interconnected positions amplified the contagion. Many of its Morpho vaults have since seen substantial withdrawals.

4. K3 Capital

Positioned as an institutional-grade, compliance-focused Curator, K3 manages approximately USD 570 million. K3 worked closely with Gearbox to launch customized USDT credit markets offering up to 10x leverage for selected strategies.

However, K3 was exposed to deUSD through its Euler vaults. After the xUSD fallout, K3 requested 1:1 redemption from Elixir’s founders but received no response, forcing an on-chain liquidation that still left roughly USD 2 million unredeemed. Elixir later declared bankruptcy and refused to compensate Curator vaults. K3 has since hired top U.S. legal counsel and plans to sue Elixir for breach of agreement and misrepresentation.

5. Re7 Labs

Re7 Labs, another major Curator tied to Stream, once oversaw nearly USD 900 million in assets, but has now reduced to USD 250 million. Re7 allocated aggressively — deploying tens of millions into Balancer non-protected pools, emerging-chain mining, and off-chain perpetuals with up to 10x leverage.

The Balancer exploit triggered xUSD’s collapse, and shortly afterward, Re7’s vaults on Lista DAO were drained when sUSDX/USDX collateral was used to borrow excessively, pushing utilization to 99% and borrowing rates above 800%.

Re7 has reported losses exceeding USD 13 million and is facing severe reputational damage. Its aggressive, high-overlap positioning shows how Curator risk can be amplified through leverage and asset concentration.

Across the crisis, Curator performance diverged sharply: some maintained discipline and avoided exposure, while others amplified systemic risk through aggressive strategies. This demonstrates that Curator safety depends heavily on management philosophy, not the model itself.

V. Risks and Challenges of the Curator Model

This crisis revealed several structural vulnerabilities within the Curator ecosystem:

1. Misaligned Incentives and Excessive Risk-Taking

Performance-based compensation encourages Curators to chase higher yields while shifting losses onto users. This creates moral hazard and pushes some Curators toward riskier, opaque, or leveraged strategies.

2. Lack of Transparency

Many Curator strategies operate like black boxes. Users often have no visibility into leverage levels, asset allocations, or liquidation paths. For example, after Stream collapsed, users learned that MEV Capital had 5x leverage, with USD 170 million of collateral supporting USD 530 million in loans — information that was never clearly disclosed.

3. Risk Concentration and Domino Effects

A handful of Curators control most of the TVL. When these Curators share similar strategies or exposures, a single failure can trigger widespread contagion. MEV and Re7’s 85% exposure to Stream exemplifies this.
Leverage and cross-protocol positioning further tighten these correlations, extending the failure path across multiple lending systems.

4. User Misunderstanding and Blurred Responsibility

Many users assume vault risk comes from the hosting protocol (Morpho, Euler, etc.) rather than the Curator. When Curators cause losses, protocols often absorb the community backlash, damaging their reputations and forcing them into crisis management even when they were not at fault.

5. Technical Bottlenecks and Liquidation Inefficiency

Strategies involving multi-protocol loops or complex collateral chains can overwhelm liquidation mechanisms. Morpho, for instance, reached 100% utilization in certain vaults, preventing timely liquidations and resulting in USD 700,000 in bad debt and forced operational pauses.

Overall, the chain of stablecoin depegs shows that Curators have reintroduced human-driven, centralized risks back into DeFi — precisely the risks DeFi originally sought to eliminate.

VI. Improving the Curator Model and Future Outlook

To rebuild trust and enhance system resilience, improvements are needed at multiple layers:

1. Stronger Curator Self-Discipline

Professional Curators must uphold financial-grade risk standards, including:

• transparent disclosures of leverage, collateral, and strategy structure
• real-time monitoring and automated risk adjustments
• prioritizing long-term, stable returns over short-term gains

A high-transparency standard must become the norm for Curators moving forward.

2. Better User Due Diligence

Users should evaluate Curators based on team reputation, public risk models, audit history, stress-test performance, and incentive alignment. High yields always imply higher risk — this principle must not be ignored.

3. Stronger Protocol-Level Governance and Controls

Lending protocols must act as active supervisors rather than passive platforms. Concrete improvements include:

• mandatory Curator risk-disclosure requirements
• staking and slashing mechanisms to align incentives
• Curator onboarding/offboarding rules based on performance
• periodic strategy reviews and automated parameter validation

Future Curator models may resemble modular, isolated strategy plugins — flexible yet safely sandboxed within protocol-level risk frameworks. With stronger governance and transparency, Curators could evolve from today’s fragile structure into a robust pillar of the DeFi ecosystem.

Conclusion

The stablecoin chain-reaction crisis prompted deep reflection on the Curator model. TVL in the Curator vaults fell by roughly 25% within days, exposing critical structural weaknesses. Yet the shake-out may pave the way for more mature, transparent, and sustainable models.

Curators can still become a positive force — if mechanisms are redesigned to align incentives, enforce responsibility, and improve transparency. Encouragingly, early signs of progress are emerging: increased disclosures, discussions on staking-based accountability, and modular architecture proposals from major protocols.

With collective effort, the Curator model may ultimately evolve into one of DeFi’s foundational innovations, rather than a systemic risk amplifier.

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