Ethereum Lending Protocol Morpho Undergoes Stress Test: Single Wallet's Massive Purchase of Pendle Yield Token YT-reUSD Triggers $36.39 Million Liquidation
Coin Circle (120Btc.coM): Early Tuesday morning Beijing time, Ethereum's leading lending protocol Morpho experienced an atypical on-chain liquidity shock. The underlying token only saw about a 3% price shift, yet it triggered a forced liquidation wave amounting to nearly $36.39 million in a short period. The epicenter of this storm originated from a significant movement of yield tokens (YT) on the derivatives trading platform Pendle.
The collateral asset at the core of this liquidation storm was PT-reUSD. This is a fixed-rate certificate issued within the Pendle ecosystem, supported by dollar-denominated asset reUSD for underlying yield. In Pendle's asset stripping logic, yield-bearing assets are broken down into principal tokens (PT) representing the withdrawal of principal at maturity and yield tokens (YT) capturing interest accrued during the holding period. The values of the two exhibit a dynamic seesaw effect: when a large influx of funds boosts the valuation of the yield side, the current price of the principal side is passively adjusted downward to maintain the balance of the underlying asset value.
According to tracking analysis by on-chain security firm PeckShield, a certain whale address first made a large purchase of YT-reUSD, temporarily raising the implied annual yield of the asset to about 20%; shortly after, this address quickly sold off its holdings. This drastic influx and outflow of funds directly caused the secondary market price of PT-reUSD to drop by about 3% in a short time, with related liquidation data also confirmed in Morpho's official monitoring panel.
Extreme Leverage Backfires on Liquidity
Exploring the core mechanism behind the rapid spread of this liquidation event lies in the high-leverage operating model overly relied upon by borrowers. Some market participants deposited PT-reUSD into Morpho as collateral to borrow USDC stablecoins, and then used the borrowed funds to purchase more PT assets, creating a repetitive "circular borrowing" cycle. Each iteration of this operation, while significantly increasing potential interest margin on paper, also severely compresses the safety margin of the positions, ultimately squeezing the overall risk buffer into a dangerous zone of less than 3%.
In terms of the liquidation trigger mechanism, Morpho's oracle system employs a conservative pricing model: the system compares the average transaction price of PT assets over the past 15 minutes with a theoretical interest rate curve that rises to $1 by the maturity date, taking the lower of the two as the effective feed price. When the actual market transaction price falls below this theoretical curve, the 15-minute average price takes effect immediately. After the storm subsided, Pendle clarified on social media that the liquidation actions in the PT-reUSD/USDC market fully complied with the oracle design logic, and there were no issues with data misconfiguration.
Steakhouse Financial, responsible for managing the lending pool, also responded, emphasizing that depositors in its treasury were not harmed, and the system did not incur any bad debts. This was thanks to the timely intervention of the liquidation process, with funds from the sale of collateral fully covering the liability exposure. After a brief withdrawal to assess risks, the institution has resumed funding supply, and the operational logic of the underlying asset reUSD remains intact.
Long-Tail Risks Reshape Risk Control Logic
Analyzing this multi-million dollar liquidation case triggered by a single on-chain transaction fully exposes the inherent fragility of the cyclical leverage within decentralized finance (DeFi) systems. Even a routine slight adjustment in the market can lead to a sudden aggregation of micro-risks that were originally dispersed across individual cases, causing a pulse-like impact on the same liquidation engine once participants' safety cushions are excessively overdrawn. High yields essentially represent a disguised discount on risk buffer space.
At the same time, while the oracle's conservative pricing mechanism maintains the system's rigid repayment at the code execution level, it cannot prevent the collapse of the liquidation dominoes when assets are subject to concentrated sell-offs. The oracle is not the direct instigator of the storm, but it objectively fails to provide additional buffer protection for over-leveraged stakers.
-- Price
This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.
You may also like

Circle's Enterprise-Level Stablecoin Blockchain Arc Sees Most Traffic from Meme Tokens, with Only About 624,000 USDC Transfers

Lemon exits Brazil over crypto licensing costs

Morpho Opens Borrowing Against Coinbase's Tokenized Stocks

Why risk a smart contract exploit when safe US Treasuries pay better crypto yields?

Two Prime Launches Axiom WBTC Yield Vault with $12 Million Risk Buffer

Galaxy launches 2 stablecoin vaults on Kamino

World Money launches in 150+ countries with Stripe

Circle CEO Jeremy Allaire: Arc Is Even Bigger Than USDC
Circle CEO Jeremy Allaire calls Arc "an even more consequential launch than USDC itself" a claim backed by a $222 million presale and validators including BlackRock.

USD.AI Launches USDai and sUSDai on Arc

Circle Launches Arc Mainnet with BlackRock, Visa, and Mastercard Among Validators

Arc Launches on Its First Day, Crypto Infrastructure Projects Celebrate, Is the Next Robinhood Chain Here?

Timing the Market vs. Following Trends: Who is Robinhood Chain Emulating?

Arc Enables USDC Fee Payments through MetaMask Integration

Olas Deploys AI Infrastructure on Robinhood Chain

Uniswap Market Share Rises Nearly 10%, Robinhood DEX Volume Reaches $50 Billion

BlackRock and Visa Join Forces! A Comprehensive Overview and Practical Guide to Circle's Arc Ecosystem

Zama Opens 16 Morpho Vault Deposits and Launches Privacy Swap Protocol

$55 million Aave stablecoin pool sees just $4.4 million available for withdrawals

Why Circle Is Building Its Own Blockchain? A Complete Breakdown Before the Arc Mainnet Launch

Morpho Launches Lending Market on HSK Chain

$290 billion Stablecoin, Aave USDC Yield Falls Below 1-Year Treasury

Morpho Proposes Transition of Mini App Operations to Feather

Dialogue with Fejau: The Next Round of the Bull Market for Digital Assets is Finally Here

Meet Kute, the New Bitcoin Wallet for Generation Z

Morpho Midnight Audit Results Show No Critical Vulnerabilities

Memecoin degens are providing the spark for Wall Street to turn stock tokens into real capital

Fidelity brings FIDD stablecoin to on-chain finance

Compound opens USDC market with up to 87% LTV

Expansion of Fixed-Rate DeFi Loans: Competition Among Morpho, Jupiter, and Kamino
![[Kwon Seong-min Column] Does an IPO Become an ICO When It Goes On-Chain?](/public-static/36_237ac06ba0.png?format=avif)










