Early Tuesday, a price swing of roughly 3% caused about $36.4 million in forced liquidations on Morpho, a lending platform built on Ethereum. The trouble started after one wallet made a large trade in a connected market. It was enough to push down the value of collateral that many borrowers had posted, and their positions were closed out automatically.
At the center of it all was PT-reUSD, a token issued through Pendle. Pendle allows users to split an interest-bearing asset into two parts. One part, the principal token, is a claim on the original value, redeemable at a set date. The other part, the yield token, collects the interest earned along the way. In this case, the redemption date was Dec. 10.
The two parts normally move like a seesaw. Both come from the same asset, so their combined value has to match the whole. When more people buy the yield side, they bid up the expected interest, which pushes the principal side down to balance things out.
What the Wallet Did
Blockchain security firm PeckShield tracked the trigger. A single wallet bought a large amount of YT-reUSD, which pushed the implied annual yield to around 20%. The wallet then sold out quickly. That buying pressure sent PT-reUSD down by about 3%.
To be clear, a 3% move is not unusual in crypto. The problem was not the size of the move itself. It was how exposed some borrowers had become.
Some traders had deposited PT-reUSD into Morpho and borrowed USDC against it. They used that USDC to buy more PT-reUSD and repeated the process. Each round increased the potential return but also cut the room for error. By the time the price shifted, some borrowers had less than 3% of headroom before their positions would be liquidated.
Why Small Moves Can End Positions
When collateral falls below a certain level, the platform sells the collateral to repay the loan. The borrower is not asked for permission. That is why even a small price dip can wipe out a position.
Morpho relied on an oracle to decide what the collateral was worth. This particular oracle took the lower of two values: either PT-reUSD’s average trading price over the last 15 minutes, or a fixed schedule that climbs gradually toward $1 at maturity. Since the average price dropped, that lower value triggered the liquidations.
Pendle did not immediately respond to a request for comment. The situation shows how tightly connected token prices, lending markets, and oracle design can be. A normal market move, in the wrong setup, becomes something much bigger.
