Hotcoin Research | Behind the Chain Reaction of Stablecoin Failures: The Responsibilities, Risks, and Future of the Curator Model

1. Introduction

Last week, the collapse of Stream Finance's xUSD acted as a trigger, leading to the decoupling of stablecoins such as deUSD and USDX. The DeFi sector witnessed a crisis of a chain reaction of stablecoin decoupling, with lending protocols being severely impacted. The Curator model played a role in exacerbating the situation, provoking market controversies and reflections.

deUSD

This article will delve into the role and function of Curators in on-chain lending protocols, their profit models, and review leading Curators, including their backgrounds, styles, funding scales, and performance during the recent turmoil. The recent stablecoin depegging incident has revealed the risks and challenges of the Curator model, and we will look forward to the future evolution of the Curator model and the lending market, aiming to provide investors with comprehensive insights.

2. Role and Function of the Curator

A Curator refers to an external fund pool manager that exists within DeFi lending protocols. They are responsible for designing, deploying, and operating specific strategy-based fund pools (Vaults), encapsulating more complex DeFi yield strategies into products that ordinary users can deposit into with a single click. For example, in emerging lending protocols like Morpho and Euler, users can choose different Vaults provided by various Curators. After depositing funds, the Curator determines the investment strategy on the backend, including asset allocation weights, risk management, rebalancing cycles, and withdrawal rules. Unlike traditional centralized wealth management, Curators cannot directly misappropriate user funds; their authority is limited to executing strategies through smart contract interfaces, and all operations are subject to contract security constraints.

The original intention of introducing the Curator model is to utilize the strategy management and risk control capabilities of these professional teams to bridge the supply and demand mismatch in the lending market. On one hand, it helps ordinary users achieve higher returns in the increasingly complex DeFi world; on the other hand, it assists lending protocols in increasing their TVL and reducing the probability of systemic risk events. Since the Vaults managed by Curator often provide higher returns than traditional lending pools (such as Aave), they can attract a large influx of funds. According to DefiLlama data, the scale of the Curator model's fund pools has rapidly grown over the past year, surpassing 10 billion USD in early November 2025. Currently, due to panic, it has dropped to around 7 billion USD, indicating that some funds are withdrawing from this model.

Source:

In this “curator” model, the lending protocol itself becomes a matching platform, outsourcing risk control and fund allocation functions to the Curator team, which is vividly compared to the “fund managers of the DeFi world.” This means that over $8 billion in funds are actually managed by numerous Curators from diverse backgrounds. On the surface, professionals do professional things, making it easy for users to obtain high returns; however, at the same time, risks have shifted from code to human management, and human factors have become an unavoidable source of risk.

3. Curator Profit Model

To understand the risks hidden in the Curator mode, one must first understand its profit logic. Typically, the income sources for Curators include:

Performance Fee: After the strategy is profitable, a certain percentage is extracted from the net profit as a share, which is the main form of income. For example, the USDT Vault managed by Gauntlet on Morpho charges a 5% profit share.

Management Fee: A management fee is charged at an annualized rate based on the total assets of the fund pool (similar to traditional fund management fees).

Incentives for Agreements: Lending agreement parties may grant Curator token rewards to encourage the creation of high-quality strategies, such as subsidies for early introduction of new strategies.

Brand derivative revenue: After Curator gains popularity, it may also issue its own products or even tokens for profit.

In short, the larger the Vault and the higher the strategy yield, the more profit the Curator will obtain. In intense competition, no Curator dares to casually raise the commission rate to grab profits, as users are more concerned about the APY. Therefore, in order to attract funds, Curators often try to increase the nominal yield of the strategy, thus creating a yield-driven competition.

This incentive mechanism contains obvious moral hazards: Curators earn excess profits, but losses are borne by the users. Driven by the internalization of profits and the externalization of risks, Curators are bound to continuously seek higher returns, which means higher risks, and safety is easily overlooked. This tendency becomes even more dangerous when most deposit users only pay attention to the profit numbers without understanding the strategy details.

4. Head Curator Review

Currently, a number of leading Curator professional institutions have emerged in the DeFi lending sector, managing assets worth hundreds of millions. Below, we will review representative leading Curators, each with unique team backgrounds, management scales, risk control styles, and profit models:

1.Gauntlet

Source:

Founded in 2018 by Tarun Chitra and other quantitative finance experts, Gauntlet is one of the earliest teams deeply engaged in DeFi risk management. Gauntlet is known for its data-driven risk assessment and management, having provided parameter optimization services for Aave, Compound, and others. In Curator mode, Gauntlet emphasizes robust risk control by continuously calibrating strategy parameters and compliance audits through an automated quantitative platform. Its Vault has a total locked value of over $2 billion, covering multiple chains such as Ethereum, Base, and Solana. Gauntlet's revenue primarily comes from management fees (charged annually), with annual management fee income estimated at about $720 million dollars.

The Gauntlet model is closer to “risk control advisor + curator”. In this de-pegging of deUSD, Gauntlet assisted Compound in urgently freezing withdrawals to stop losses, which was 3 hours earlier than manual operations, reducing losses by about $120 million. This shows its risk control response is quite professional and fast.

2.Steakhouse Financial

Source:

Steakhouse was founded in 2020 and has facilitated MakerDAO in bringing US Treasury bonds and private credit on-chain, aiding the development of RWA tokenization. It utilizes Morpho infrastructure to dynamically allocate and rebalance funds across various lending pools based on different market yield conditions, thereby creating institutional-grade robust yield strategies. Steakhouse's strengths lie in precise interest rate risk analysis and portfolio optimization, with its core areas being stablecoin yield spreads and staking yields. Currently, Steakhouse manages 48 Vaults distributed across Ethereum, Base, Polygon, and other chains, with an asset management scale of approximately $1.5 billion. Steakhouse's clients include institutions like Coinbase, Lido, and Ethena, assisting them in designing stablecoin yield products.

In the xUSD event, Steakhouse completely avoided the risk exposure and did not invest user funds into high-risk projects like Stream xUSD, demonstrating its cautious style. Overall, Steakhouse is known for its stability, striving for solid returns while ensuring safety.

3.MEV Capital

Source:

A Curator specializing in DeFi quantitative hedging strategies, managing assets peaked at nearly $10 billion, which has now decreased to 400 million. The team consists of traditional hedge fund and on-chain arbitrage experts, adept at enhancing returns using methods such as MEV. MEV Capital excels at employing over-the-counter options hedging strategies combined with looped lending to improve capital efficiency. In extreme market conditions, this high leverage design accelerated the blow-up.

MEV Capital became the focus at the Stream event: as the core collaborator Curator introduced by the Stream protocol, it deeply engages in the xUSD strategy. The two parties are closely tied through an agreement of “strategy licensing - fund custody - profit sharing.” Currently, MEV Capital's TVL on Morpho is declining rapidly, with some pools having a TVL of only one-tenth of their peak period. MEV Capital has recently begun to conduct “bad debt liquidation” on certain stablecoins, handling it in a way that distributes the losses among the depositors.

It is evident that MEV Capital has an aggressive style, willing to introduce complex derivatives and high leverage in pursuit of high returns, with a relatively high risk tolerance. In addition, its collaboration with Stream involves profit sharing, which has sparked controversy among users.

4.K3 Capital

Source:

A Curator positioned for institutional-level compliance emphasizes providing safe and transparent on-chain asset allocation services for institutions and high-net-worth users. K3 manages approximately $570 million in funds. K3 works closely with the Gearbox protocol and has previously utilized Gearbox's “pool-to-account” model to launch a customized USDT credit market, allowing users to borrow up to 10x leverage by collateralizing USDT, investing in DeFi strategies such as Ethena, Sky, and Pendle for returns. In this way, certain Vaults of K3 provide users with stable annual returns of 8%-12%. In terms of risk control, K3 tends to favor fundamental basis arbitrage while avoiding excessive nested risks.

In this explosion, K3 was also difficult to escape: it invested in the stablecoin deUSD issued by the Elixir protocol in the Vault managed on the Euler platform. After the Stream explosion on November 3, K3 negotiated with the Elixir founder for a 1:1 redemption of deUSD, but was met with avoidance. Unable to do otherwise, K3 sold deUSD for liquidation on November 4, but still had $200 USD that could not be redeemed, resulting in a loss. Subsequently, the Elixir official announced bankruptcy, promising that retail investors and liquidity pools' deUSD could be compensated 1:1 with USDC, but the deUSD held by the Curator Vault would not be directly redeemed and needed to be resolved through negotiations among parties. K3 has hired top lawyers in the United States and plans to sue Elixir and its founder Philip Forte for breach of contract and false statements, demanding compensation for reputational damage and mandatory redemption of deUSD.

5.Re7 Labs

Source:

A new emerging Curator, has stood at the center of the storm alongside MEV Capital in this event. Re7 Labs once managed a scale of approximately $900 million, which has now decreased to $250 million. As one of the top Curator partners on the Stream platform, Re7 once controlled over 25% of the total locked volume on Stream (approximately $125 million). However, its investment allocation has been aggressive: it is reported that Re7 invested $6500 million into Balancer's non-insurance pool for liquidity mining, $4000 million deployed in emerging public chain mining, and $2000 million invested in off-chain perpetual contracts, engaging in high-leverage speculation up to 10 times. All three directions belong to high-risk, high-reward fields.

In early November, Balancer experienced a security incident that indirectly triggered the collapse of xUSD. Subsequently, Re7 and MEV faced issues in the Vaults of other protocols: the lending vaults operated by both on the Lista DAO platform were exploited, draining sUSDX/USDX collateral loans, leading to a utilization rate of 99% and borrowing rates skyrocketing to over 800%, triggering a forced liquidation mechanism. It can be said that the operations of Re7 Labs reflect the most aggressive side of the Curator model: highly concentrated risk exposure combined with multi-layered high leverage. Re7 is now also deep in a loss and reputation crisis, with its released report on the impact of the de-pegging indicating that the affected funds exceed $1300 million dollars.

It is evident that in this stablecoin de-pegging incident, the styles and outcomes presented by different Curators vary greatly: some Curators heavily invested in high-risk assets, ultimately leading to disaster, while others adhered to risk control principles and successfully avoided catastrophe. This proves that professional Curators are indeed capable of identifying and avoiding risks; the key lies in self-discipline and restraint.

5. Risks and Challenges of the Curator Mode

In summary, the Curator model has exposed multiple inherent challenges in this event:

Incentive misalignment and excessive profit-seeking: The profit model driven by performance commissions motivates Curators to pursue high-yield strategies, leading to an increase in risk appetite. When profits come from high-risk investments while losses are borne by users, Curators lack sufficient motivation to prioritize safety, which can easily give rise to moral hazard. Curators may take risks to seek returns, ignoring the possibility of black swan events.

Lack of Transparency: Many Curator strategies operate as black boxes with serious disclosure deficiencies. Users often only see vague strategy descriptions and historical return curves, while being completely unaware of core risk information such as underlying positions, leverage ratios, and liquidation mechanisms. For example, after the Stream incident, users discovered that MEV Capital had an actual leverage of up to 5 times, with xUSD having only $170 million in assets but having borrowed $530 million. Overall, the lack of transparency is one of the biggest risks in the current Curator model.

Risk Concentration and Domino Effect: Under the Curator model, a few Curators often control most of the funds. If these Curators all step into the same pit at the same time, the consequences are dire. For instance, before the Stream explosion, MEV and Re7 managed 85% of its funds and heavily invested in the same protocol, leading to multiple Curators facing losses simultaneously. Additionally, the cross-protocol activities of Curators themselves become a medium for risk transmission: Vaults are interconnected through shared assets and leverage chains, creating a domino effect. Furthermore, some Curators have highly similar strategies, exacerbating the impact of single point failures. Therefore, the lack of independence in strategies and the high degree of overlap in positions are issues that need to be cautioned against in the Curator domain.

User awareness and responsibility definition: Many deposit users do not truly understand the existence and role of Curator, mistakenly equating Vault risks with protocol risks. If Curator encounters issues, the protocol side has to “take the blame,” directly facing rights protection and public opinion pressure. This time, Euler suffered huge bad debts caused by Curator, leading users to question Euler's security; the suspension of withdrawals by Morpho Vault also impacted its credibility. This ambiguity of responsibility further leads some Curators to pursue profits without restraint.

Technical and Settlement Mechanisms: Curator strategies are often complex and cross-protocol, sometimes challenging the timeliness and effectiveness of existing settlement mechanisms. For example, Morpho encountered a situation where the Vault utilization was at 100%, unable to settle in a timely manner, resulting in $70 million bad debts, forcing a suspension of certain on-chain operations. Complex strategies lead to extended settlement chains, and in extreme market conditions, technical execution may fail.

In summary, this stablecoin de-pegging chain event has sounded the alarm bell, and the Curator model has reintroduced previously dispersed human risks into DeFi, amplifying many issues of traditional finance: information asymmetry, moral hazard, centralization risk, and regulatory gaps.

6. Improvements and Future Prospects of the Curator Mode

In the face of the aforementioned challenges, various parties in the industry have been exploring improved paths for the Curator model to rebuild trust and realize its positive value.

Curators' self-discipline and ability improvement are crucial: an excellent Curator should possess awareness of traditional financial compliance and comprehensive risk management capabilities, including portfolio risk assessment, understanding of oracle and contracts, market monitoring, and intelligent rebalancing. Curators should also abandon a short-sighted gambling mentality and focus more on long-term stable returns, prioritizing users' interests. Transparency is also a part of self-discipline: Curators have the responsibility to proactively disclose key information such as strategy structure, collateral composition, leverage ratio, and liquidation rules for external review and verification. This not only protects users but also safeguards the Curator from false accusations. Future Curators must establish “high transparency standards” and expose hidden risks to the sunlight.

Users should carefully evaluate and choose Curators: Before investing in a Vault, pay attention to the reputation of the Curator team, publicly available risk models or stress test reports, whether they have been audited, how they performed in past extreme market conditions, and whether the incentive mechanisms align with users. It is especially important to remember the iron rule that high returns correspond to high risks, and to stay away from hype that claims “double-digit risk-free returns.” Ordinary investors may not have the energy to delve into every detail of each Vault, but they can at least rely on community discussions and third-party data to assist in their judgment.

The protocol layer needs to strengthen supervision and constraints on Curators: lending protocols should not blindly allow Curators to increase TVL but should take on a basic “regulator” role. Specific measures include: requiring Curators to publicly release risk models and regular reports, allowing the protocol to independently verify strategy data; introducing a staking and forfeiture mechanism, requiring Curators to lock up a certain margin, which will be forfeited proportionally in the event of significant violations or losses; establishing a Curator admission and replacement system, regularly evaluating Curator performance, and replacing those with poor performance or overly aggressive behavior, creating ongoing external supervision of Curators to avoid systemic resonance risks. It is expected that future protocols will impose stricter contractual restrictions and governance clauses when introducing Curators to prevent similar incidents from recurring.

Looking to the future, modular, composable but mutually isolated lending strategies may become a trend. The Curator model indeed enhances yield, enriches the strategy categories, and attracts institutions to participate in DeFi. However, to make Curator a positive force for the long-term prosperity of DeFi, it is essential to leverage its strengths in mechanism design while avoiding weaknesses, integrating the flexibility of Curator into a verified liquidation and governance framework, while maintaining the unity and security of the underlying liquidity pool. Perhaps in the near future, Curator will evolve into a controlled modular plugin, allowing various service providers and integrators to build specific strategies within a mature protocol ecosystem. At that time, the Curator model will break free from the phase of rampant growth and enter a regulated and secure new era.

Conclusion

After the recent series of collapses in stablecoins, the Curator model of DeFi lending has ushered in a profound opportunity for reflection and adjustment. In just a few days, the Curator Vault's TVL evaporated by about 25%. However, amidst the burst of the bubble, more mature mechanism innovations are ready to emerge. The Curator model has the potential for a phoenix-like rebirth—under transparency, accountability, and structural optimization, it could become a key component in the DeFi ecosystem that enhances returns while safeguarding security. We have already seen some positive signs: some Curators have strengthened information disclosure, lending protocols are exploring the introduction of staking accountability mechanisms, and leading projects like Aave have provided new ideas for modular isolation. These efforts are likely to reshape user confidence, and through collaborative efforts, the Curator model could very well transform into one of the cornerstones of DeFi innovation.

About Us

Hotcoin Research, as the core research institution of the Hotcoin exchange, is dedicated to transforming professional analysis into your practical weapon. Through “Weekly Insights” and “In-depth Research Reports,” we analyze market trends for you; leveraging our exclusive column “Hotcoin Selection” (AI + expert dual screening), we identify potential assets and reduce trial and error costs. Every week, our researchers will also interact with you face-to-face through live broadcasts, interpreting hotspots and predicting trends. We believe that warm companionship and professional guidance can help more investors navigate through cycles and seize the value opportunities of Web3.

Risk Warning

The cryptocurrency market is highly volatile, and investing carries risks. We strongly advise investors to make investments based on a full understanding of these risks and within a strict risk management framework to ensure the safety of their funds.

Website:

X： x.com/Hotcoin_Academy

Mail: labs@hotcoin.com