The November 2025 Bitcoin Leverage Liquidation Event: Exposing Systemic Vulnerabilities in DeFi Lending and Margin Trading

The leverage liquidation turmoil of November 2025 revealed significant weaknesses within decentralized finance (DeFi) lending systems and margin trading platforms, setting off a chain reaction of breakdowns throughout the cryptocurrency landscape. Several major incidents, such as the $116 million DeFi breach and the $93 million downfall of Stream Finance, highlighted the delicate nature of interconnected protocols and the pressing demand for stronger risk controls. As detailed in a , the Balancer exploit targeted flaws in v2 Stable Pools and Composable Stable v5 pools, draining funds and destabilizing stablecoins. At the same time, Stream Finance’s stablecoin plunged to $0.30 after liquidity was pulled, worsening the situation, according to a .

Bitcoin’s sharp 17% drop to $103,000 in the wake of the Balancer hack intensified the crisis, causing over $1.3 billion in forced liquidations and pushing leading altcoins into bearish territory, as noted in a

. This turbulence exposed the fragile equilibrium between leverage and liquidity in DeFi, with platforms like and experiencing liquidity lockups as the failures rippled outward. .

A major contributor to the crisis was the opaque Curator model used by platforms such as Euler and Morpho. These protocols enabled off-chain strategies to deliver high annual yields, but the lack of visibility created risks similar to peer-to-peer lending. The downfall of Stream Finance, set off by the liquidation of an external Curator’s positions during market swings, resulted in $160 million of user assets being frozen and $137 million in bad debt for Euler, according to the

. David Bailey, a crypto advisor to Donald Trump, cautioned that DeFi lending is on the verge of a severe credit crunch, which could spill over into centralized finance, as mentioned in a .

The aftermath also exposed the shortcomings of conventional risk management approaches. Even with repeated audits, protocols remained susceptible to advanced attacks, underscoring the importance of real-time monitoring. RedStone’s Credora platform has been highlighted as a possible answer, providing live credit and collateral tracking to help prevent future domino effects, as outlined in the

. Nonetheless, the crisis has shaken investor confidence, with stablecoins like Elixir’s deUSD collapsing to $0.05 amid widespread sell-offs, as reported in the .

As DeFi continues to confront these obstacles, the events of November 2025 stand as a stark warning about the systemic dangers present in interconnected, lightly regulated environments. Both investors and regulators must focus on improving transparency, conducting stress tests, and fostering collaboration across protocols to prevent future disasters.