A roughly 3% decline in PT-reUSD triggered about $36.4 million in liquidations on Morpho, a decentralized lending protocol on Ethereum. One wallet's large purchase of YT-reUSD pushed the implied yield to 20%, then sold, causing the cascade.
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Morpho sees $36.4 million liquidations as PT-reUSD drops 3%
PT-reUSD fell roughly 3%, triggering about $36.4 million in liquidations on Morpho, a decentralized lending protocol on Ethereum, on Tuesday.
Pendle said the oracle feed operated as configured, while Steakhouse Financial, which curates Morpho lending markets accepting PT-reUSD collateral, said lenders in its vaults were unaffected and no bad debt was created.
Blockchain security firm PeckShield identified the trigger: one wallet repeatedly bought YT-reUSD, pushing the implied annual yield from about 11% to 20%, then sold its position shortly afterward. The buying pushed PT-reUSD down about 3%. Borrowers had deposited PT-reUSD on Morpho, borrowed USDC against it, bought more PT-reUSD with the borrowed funds, and repeated the loop — leaving some positions with less than 3% collateral headroom before automatic liquidation.
The event shows how leveraged loop strategies in DeFi can turn small price moves into cascading liquidations, raising questions about risk management on permissionless lending platforms where borrowers can stack collateral loops with minimal margin for error.
PT-reUSD is a principal token created through Pendle, a yield-tokenization protocol on Ethereum, and linked to reUSD, a dollar-denominated yield-bearing asset. Pendle lets holders split an interest-paying asset into principal tokens (PT) and yield tokens (YT) whose combined value reflects the underlying asset. When buyers pile into the yield side, the principal side gets cheaper to compensate.
The oracle Morpho used to value collateral took the lower of PT-reUSD's 15-minute average trading price or a fixed schedule climbing gradually toward $1 at maturity. When the market price fell below that curve, the 15-minute average became the valuation used for liquidations.
Steakhouse Financial temporarily withdrew funds from affected markets while reviewing the incident before beginning to redeploy capital. The underlying reUSD asset remained unaffected, according to Steakhouse.
For Morpho, which operates as a permissionless lending market, the incident highlights the trade-off between open access and systemic risk — anyone can create a market, but the protocol's risk curators bear responsibility for setting collateral parameters that can withstand sharp moves in volatile yield-token markets. Pendle's yield-tokenization model has expanded across DeFi, with protocols like Morpho integrating PT tokens as collateral, and the event may prompt risk curators to reassess collateral factors for PT-reUSD and similar principal tokens.
This article is for informational purposes only and does not constitute investment advice.
