A price move of roughly 3% in a single token triggered about $36.4 million of forced selling on the lending platform Morpho on Tuesday, August 25. The collateral was PT-reUSD, a token issued on Pendle and tied to reUSD, a dollar-denominated asset that pays interest to holders. Blockchain security firm PeckShield traced the trigger to one wallet that bought a large amount of the paired yield token, pushed its implied annual yield to 20%, then sold out. When that token drops below a set level, a lending market sells the collateral automatically to repay the loan, which is why a small move ended dozens of positions at once.
Pendle splits an interest-paying asset into two tokens: a principal token that matures toward face value and a yield token that captures the interest. The two behave like a seesaw. Both are carved from the same asset, so their prices have to add up to the whole. When buyers pile into the yield side, the principal side has to get cheaper to compensate.
Key takeaways
- A roughly 3% decline in PT-reUSD set off about $36.4 million in liquidations on Morpho on August 25, according to on-chain data flagged by PeckShield.
- One wallet bought heavily into YT-reUSD, drove the implied yield to 20%, then exited, dragging the principal token down.
- Borrowers had looped PT-reUSD into USDC loans and back into more PT-reUSD, leaving less than 3% of headroom before automatic liquidation.
- Pendle said its price feed worked as designed, and Steakhouse Financial reported no lender losses, no bad debt, and no impact on the underlying reUSD asset.
Published: August 25, 2026, 14:30 UTC
What set off the cascade
The damage did not come from the token itself. It came from what traders built on top of it. Some depositors had put PT-reUSD on Morpho, borrowed the stablecoin USDC against it, bought more PT-reUSD with the borrowed money, and repeated the loop. This is a looped, or recursive, trade: each round raises the potential return and shrinks the buffer between the position and a forced sale.
PeckShield reported that a single wallet bought a large block of YT-reUSD, the yield side of the pair, which sent the implied annual yield to 20%. That buying forced the principal token, PT-reUSD, down about 3%. Traders running the loop had left themselves under 3% of protection, so the dip was enough to close their loans automatically. Pendle did not immediately respond to a request for comment.
Why it matters for lenders and depositors
The headline number is large, but the outcome was contained. Steakhouse Financial, which curates the lending markets that accept PT-reUSD as collateral, said lenders in its vaults were unaffected and that no bad debt was created. In plain terms, the sales raised enough to repay the loans in full. Steakhouse pulled its capital out of the affected markets while it reviewed the event, then started redepositing.
The episode is a reminder that leverage stacked on structured yield tokens can unwind on ordinary price moves. The same pattern showed up earlier this month, when a single leveraged position accounted for a large share of Aave’s debt during Ethereum’s 18% day. For business readers weighing on-chain yield strategies, the risk sits less in the underlying asset and more in how tightly a position is wound.
How the oracle turned 3% into $36 million
An oracle is a data feed that tells a lending platform what a piece of collateral is worth. Morpho’s feed for PT-reUSD took whichever of two numbers was lower: the token’s average trading price over the previous 15 minutes, or a fixed schedule climbing gradually toward $1 at maturity.
The fixed schedule acted as a cap, preventing the token from being valued above its path toward $1. Once the market price slipped below that curve, the 15-minute average became the lower figure and drove the valuation. That is the moment thin positions crossed their liquidation line. Pendle stated the feed was configured correctly and did what it was designed to do, placing the fragility in the borrowers’ own leverage rather than the pricing mechanism.
Similar governance and design questions have surfaced across DeFi this month, from the Term Finance governance attack to hardfork upgrades on major chains. The through-line is that small technical details, an oracle rule or a fee split, decide who keeps their money when markets twitch.
Frequently asked questions
What is a liquidation in DeFi lending?
A liquidation is the automatic sale of a borrower’s collateral when its value falls below a required threshold. The lending platform sells the collateral to repay the loan without asking the borrower first, which protects lenders from losses.
What are Pendle principal and yield tokens?
Pendle splits an interest-bearing asset into a principal token that matures toward face value and a yield token that captures the interest. Their prices move in opposite directions because both are carved from the same underlying asset and must add up to it.
Did anyone lose money in the Morpho event?
Borrowers running the looped trade lost their leveraged positions when they were liquidated. Steakhouse Financial said lenders were made whole, no bad debt was created, and the underlying reUSD asset was unaffected.
