In the shimmering world of decentralized finance (DeFi), algorithms whisper promises of returns, and liquidity surges like a digital river through the blockchain ledger. Yet, in this ecosystem, even the slightest anomaly can create ripples, only to fade into silence.

On the evening of November 5, 2025, Yei Finance , one of the star projects of the Sei network, announced a temporary halt to operations, citing anomalies in its fastUSD market . This announcement came like a sudden frost in a garden: not necessarily devastating, but enough to bring the entire harvest season to an abrupt stop.

By the following morning, the team had released a reassuring statement confirming that user funds were completely safe and withdrawable, and that withdrawals were suspended only for those involved in debt repayment.

Sei's rise and fertile soil

To understand the severity of Yei's shutdown, we must first look back at the fertile ground of the Yei 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 ultra-fast settlement, and in some scenarios it can even surpass the speed of Solana.

As of October 2025, Sei's total value locked (TVL) had exceeded $500 million , driven by tokenized liquidity funds from institutions such as BlackRock and on-chain integration from asset management giants such as Apollo.

In this vibrant ecosystem, Yei Finance serves as a key hub. Its product portfolio includes YeiLend (lending) , YeiBridge (cross-chain liquidity) , and YeiSwap (decentralized trading) , enabling so-called " yield stacking "—users can add lending rewards on top of providing liquidity.

This mechanism attracted a large number of speculators and "profit farmers," causing Yei's TVL to surge to $92.87 million , and its native token CLO to soar by 250% on its first day of listing.

However, behind this prosperity lies a complex network of dependencies: Yei's liquidity pools are filled with synthetic assets, such as sfastUSD —a yield-generating stablecoin pegged to Elixir's deUSD and indirectly dependent on Stream Finance's XUSD .

In the intricate web of DeFi, these protocols act as nodes to each other; a tremor in one place can affect the entire network.

The starting point of the crisis chain

It all started on November 4th .

Stream Finance suffered a $93 million vulnerability attack , causing its stablecoin XUSD to become pegged by more than 60%, triggering a series of stablecoin price collapses.

The following evening, the price of fastUSD on Sei became abnormal, with oracle quotes flickering and erratic, threatening the pricing accuracy of collateral in the lending pool.

The Yei team immediately initiated an emergency pause at 02:58 (GMT) on November 5 , calling it a "precautionary measure".

Shortly afterward, market sentiment fluctuated, and the SEI token fell by 5%, prompting users on social media platforms to discuss its impact.

By 03:00 (GMT) on November 6 , the official clarification stated that the problem originated from the YeiLend main lending pool : approximately $8.6 million of USDC was lent out as collateral for sfastUSD, and due to upstream volatility, the value of this collateral plummeted.

To avoid a chain reaction triggered by automatic liquidation, the team decided to use reserves to fully repay the debt and suspend withdrawals to facilitate remediation.

This short 24-hour period, from alarm to reassurance, perfectly illustrates the "compressed time" of the DeFi world: crises and solutions are often completed overnight, but it also exposes the fact that when everything is governed by code, the immediacy of decision-making and the unpredictability of risks coexist .

Vulnerable Collateral Networks: Hidden Dangers of DeFi

This incident reveals the structural fragility of the DeFi collateral system.

On the surface, these mechanisms provide security through over-collateralization, but when the anchor asset becomes unstable, all security assumptions collapse.

On YeiLend , users borrow USDC by using sfastUSD as collateral, with a maximum loan-to-value (LTV) ratio of approximately 70-80%. When the collateral value falls below 110%, the system will automatically trigger liquidation.

However, the Stream hack caused sfastUSD to drop in value by 20%, putting approximately $9 million in collateral at risk of being insufficient to support an $8.6 million loan .

Without intervention, automatic liquidation could trigger a liquidity collapse, or even replicate the cascading disaster of the Terra 2022 crash .

Yei's emergency pause mechanism, executed via the CosmWasm smart contract, breaks this vicious cycle.

However, this move also exposes a deeper problem: "composability risk" —when the innovation of one protocol becomes a potential burden on another protocol.

On Sei, approximately 30% of stablecoin trading volume originates from these derivative assets. This incident serves as a reminder:

Over-reliance on layered synthetic structures could allow minor anomalies to escalate into systemic crises.

Guardians in the Storm: Teams and Communities

Yei's team's response is a model of DeFi crisis public relations.

Unlike Elixir's 48-hour silence during the deUSD crisis (which resulted in a 40% loss in its TVL), Yei quickly issued a transparent statement, promising full repayment and announcing a recovery timeline.

This wasn't their first test. Back in October 2025, Yei suffered a $2 million theft , which was ultimately fully reimbursed to users. This action actually strengthened community trust.

On X and Discord, positive sentiment accounted for about 70%, which some KOLs called "textbook-style hemostasis," although some users still worry about the duration of the pause and the risks of leverage.

The heated discussion drove Discord's activity to surge by 300%, transforming it from a help channel into a community co-creation think tank.

This also highlights the "human side" of DeFi: developers are no longer indifferent coders, but guardians between algorithms and the market—their transparent communication transforms potential panic into collective trust.

Beyond the Ripples: Sei's Systemic Test

The suspension of Yei is also a stress test of the maturity of the Sei network .

As the second largest protocol in the Sei ecosystem, Yei's shutdown only caused a slight 3% drop in the price of SEI, and the outflow of funds from decentralized exchanges was negligible, demonstrating Sei's diversified and robust nature.

However, the incident also exposed several major risks:

• An excessively high proportion of synthetic coins in the collateral assets;
• Delay of multi-source oracles under extreme market conditions;
• Chain-level insurance mechanisms are still imperfect, and coverage of products like Nexus Mutual is limited.

Since 2025, there have been more than 15 similar suspension events in the global DeFi space, from Aave's oracle freeze to Compound's liquidity crisis.

In the future, DeFi needs to move towards dynamic LTV adjustment, AI risk control models, and cross-ecosystem buffer funds .

For Sei, which is currently attracting institutional funding, this incident serves as a reminder:

To find a balance between "high throughput" and "high robustness," appropriate regulatory coordination needs to be introduced to ensure that speed no longer becomes a fragile amplifier.

Building a Resilient Future

Yei's experience provides a new model for DeFi risk governance.

• The agreement could reduce the collateral ratio for synthetic assets to below 50%;
• Introduce faster multi-source oracles (such as Pythia);
• A "tiered suspension" mechanism is adopted, prioritizing the freezing of high-risk pools;
• At the Sei ecosystem level, a public resilience fund could be established, supported by transaction fees and veSEI staking.

Users should also be more rational:

Prioritize the use of stable assets (such as USDC), reduce leverage to below 3x, and diversify investment risks.

These strategies have transformed DeFi from a "speculative casino" into an "engineered financial fortress"—risk is no longer evaded, but rather managed, absorbed, and utilized.

Conclusion: A Parable on the Chain

Ultimately, the Yei Finance episode unfolded like a parable:

It reminds us that DeFi's glory and dangers coexist, and behind every accumulation of returns lies the hidden vulnerability of the system.

With the protocol set to resume operation soon (or restart as scheduled at dawn on November 7), this event will be etched into the eternal record of the blockchain.

In the long history of cryptography, these "pauses" are not failures, but turning points—

To help the ecosystem move from fragile to resilient.

For builders and believers, it whispers an eternal admonition:

In the cold precision of code, we must not only pursue efficiency, but also forge resilience. Only in this way can vulnerability be transformed into the cornerstone of trust.