3% Token Move Sparks $36.4 Million in Morpho Liquidations

Pendle allows holders to split an interest-bearing asset such as reUSD into PT-reUSD, a principal token redeemable for $1 at maturity on Dec. 10, and YT-reUSD, which captures the yield earned before then. Because the two claims derive from the same underlying asset, demand for one affects the value of the other. The structure became risky on Morpho, where some borrowers repeatedly pledged PT-reUSD, borrowed USDC and bought more collateral to amplify returns.

Early on Aug. 25, a single wallet bought a large amount of YT-reUSD, pushing its implied annual yield to 20%, before exiting the position shortly afterward, according to blockchain security firm PeckShield. The trade drove PT-reUSD down about 3%, breaching liquidation thresholds for leveraged Morpho borrowers whose safety margins were below that level. Morpho’s automated liquidations ultimately closed about $36.4 million of positions, showing how a routine token move can cascade through tightly leveraged DeFi markets.