About $36.4 million in liquidations hit the Morpho lending platform early Tuesday after a relatively small move in a Pendle-linked token market sharply reduced the value of collateral posted by some borrowers.
The collateral in question was PT-reUSD, a Pendle principal token connected to reUSD, a dollar-denominated asset that generates yield. According to the reported sequence of events, activity in the matching yield-token market pushed PT-reUSD down by around 3%, enough to liquidate positions that had been built with very little remaining margin.
How the move happened
Pendle allows holders of an interest-bearing asset to split it into two separate claims: a principal token, or PT, and a yield token, or YT. In this case, those instruments were linked to reUSD.
The reported trigger was a large purchase of YT-reUSD by a single wallet. As demand for the yield side increased, its price rose and the implied yield moved to about 20%. Because the two sides are linked, that move pressured the price of PT-reUSD lower. The wallet then sold, and PT-reUSD fell by roughly 3%.
Why a small decline caused large liquidations
A decline of that size was enough to force liquidations on Morpho because some borrowers were using PT-reUSD as collateral while running highly compressed positions. They had borrowed USDC against PT-reUSD, used the borrowed funds to buy more PT-reUSD, and repeated the process.
That loop left those accounts with less than 3% headroom before hitting liquidation thresholds. Once PT-reUSD moved down by about that amount, positions were wiped out quickly, producing roughly $36.4 million in liquidations.
What platforms said afterward
Pendle said its price feed functioned as designed during the episode, indicating that the liquidations were not caused by a malfunction in the oracle mechanism.
Steakhouse Financial said lenders did not suffer losses, no bad debt was created, and the underlying reUSD asset itself was unaffected. The event therefore appears to have been concentrated in how leveraged borrowers structured positions around PT-reUSD rather than in reUSD directly.
What the incident shows
The episode highlights how thin headroom in leveraged DeFi strategies can turn a modest market move into a much larger liquidation event. Even though the price change was only around 3%, positions built through repeated borrowing against the same collateral had little room to absorb it.
The confirmed outcome so far is limited to the liquidations on Morpho and the statements from Pendle and Steakhouse Financial: the price feed operated as intended, lenders were not reported to have taken losses, no bad debt was reported, and reUSD remained unaffected.
Source: www.coindesk.com