3% token price swing triggers $36M in Ethereum DeFi liquidations

Huo Xing Finance reports, according to CoinDesk, a price fluctuation of approximately 3% in a token triggered about $36 million in liquidations on the lending platform Morpho. The incident began when a wallet made large purchases of Pendle’s yield token YT-reUSD, pushing the implied annualized yield to 20%, before quickly selling it, causing the price of the corresponding principal token PT-reUSD to drop by around 3%. Previously, some traders had deposited PT-reUSD into Morpho, borrowed USDC stablecoins, and then used the proceeds to buy more PT-reUSD in a circular leveraged strategy, leaving their positions with less than 3% liquidation buffer. Morpho uses an oracle price that takes the lower of the 15-minute average trading price of PT-reUSD and a fixed path gradually approaching $1 at maturity; liquidations are triggered when the market price falls below this curve. Pendle stated that its price source was correctly configured and functioning as designed. Steakhouse Financial, which manages the relevant lending market, said that lenders in its vault were unaffected, no bad debts were incurred, and the proceeds from liquidations were sufficient to repay the loans. After withdrawing funds during the investigation, Steakhouse reinvested them, and the underlying asset reUSD remained unaffected.