One wallet bought heavily into a yield token, which pushed the price of its paired principal token down just enough to trigger liquidations across borrowers using it as collateral.
- A roughly 3% decline in PT-reUSD triggered about $36.4 million in liquidations on Morpho after a large YT-reUSD trade pushed the token’s price lower.
- Borrowers had repeatedly used PT-reUSD as collateral to borrow USDC and buy more PT-reUSD, leaving their leveraged positions with less than 3 percent of protection against liquidation.
- Pendle said the price feed worked as designed, while Steakhouse Financial reported that lenders suffered no losses, no bad debt was created and the underlying reUSD asset was unaffected.
A price move of roughly 3% triggered about $36.4 million of liquidations on the lending platform Morpho on Tuesday, after one wallet’s trade in a related market moved the value of what borrowers had put up as security.
Moves of this size are ordinary in crypto, but the borrowers who lost their positions had built strategies that could not survive this one.
The collateral was PT-reUSD, a token issued on Pendle and tied to reUSD, a dollar-denominated asset that pays interest to holders. Pendle lets holders split an interest-paying asset into two separate tokens.
The two behave like a seesaw. Both are carved out of the same asset, so their prices have to add up to the whole. When buyers pile into the yield side, they are effectively bidding up the interest, and the principal side has to get cheaper to compensate.
That is what happened. Blockchain security firm PeckShield said one wallet bought a large amount of YT-reUSD, driving the implied annual yield up to 20%, then sold out of the position shortly afterwards. The buying pushed PT-reUSD down by about 3%.
The trouble was in what other people had built on top of that token. Some traders had deposited PT-reUSD on Morpho, borrowed the stablecoin USDC against it, bought more PT-reUSD with the borrowed money and repeated the loop. Each round increased the potential return and shrunk the margin for error, and borrowers running this trade had left themselves less than 3% of headroom before their loans would be closed out automatically.
Pendle did not immediately respond to a CoinDesk request for comment on Telegram.
When collateral drops below a set level, the platform sells it to repay the loan without asking the borrower, which is why a small move can end a position outright.
The price Morpho used to make that call came from what the industry calls an oracle, a feed that tells a lending platform what collateral is worth.
This one took whichever of two numbers was lower, which was PT-reUSD’s average trading price over the previous 15 minutes, or a fixed schedule climbing gradually toward $1 at maturity.
The fixed schedule acted as a cap, preventing PT-reUSD from being valued above the price implied by its path toward $1 at maturity. When the market price fell below that curve, the 15-minute average became the lower number and took over.
Pendle states the feed was configured correctly and did what it was designed to do.
Steakhouse Financial, which curates lending markets that accept PT-reUSD as collateral, said lenders in its vaults were unaffected and no bad debt was created, meaning the liquidations raised enough to repay the loans. Steakhouse pulled its money out of the affected markets while it looked at what happened, then began putting it back.
The underlying reUSD asset remained unaffected, according to Steakhouse.
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Anvil: The Missing Collateral Layer
Anvil: The Missing Collateral Layer
Anvil is a shared on-chain collateral layer built on a programmable letter of credit: reserve assets as a guarantee -no loan, no interest, keep custody & yield.
Anvil is a shared on-chain collateral layer built on a programmable letter of credit: reserve assets as a guarantee -no loan, no interest, keep custody & yield.
Why it matters:
Anvil is a shared on-chain collateral layer built on a programmable letter of credit: reserve assets as a guarantee -no loan, no interest, keep custody & yield.
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