Jack Paul 
An ordinary 3% price move turned into a $36.4 million liquidation event on Morpho early Tuesday. The liquidations happened on the lending platform after one wallet made a large trade in a related token market. That trade shifted the value of collateral that borrowers had posted.
What happened on Morpho
The collateral involved was PT-reUSD, a token issued on Pendle and tied to reUSD, a dollar-denominated asset that pays interest to holders. Pendle lets holders split such an asset into two pieces. One piece, called the principal token, or PT, is a claim on the original money and can be redeemed for a dollar’s worth at a set date, in this case Dec. 10. The other piece, the yield token, or YT, collects the interest earned between now and then.
These two tokens are carved from the same asset, so their prices have to add up to the whole. When buyers pile into the yield side, they effectively bid up the interest. That pushes the principal side down to keep the pair balanced.
That is what happened. Blockchain security firm PeckShield said one wallet bought a large amount of YT-reUSD, which drove the implied annual yield up to around 20%. The wallet then sold its position shortly afterward. The buying and selling pushed PT-reUSD down by roughly 3%.
Why the leverage was so fragile
A 3% move is not unusual in crypto. The real problem was what borrowers had built on top of that token. Some traders deposited PT-reUSD on Morpho, borrowed the stablecoin USDC against it, bought more PT-reUSD with the borrowed money, and repeated the loop. Each round increased the potential return but also shrunk the margin for error. Borrowers running this trade had left themselves less than 3% of headroom before their loans would be closed out automatically.
When collateral drops below a set level, the platform sells it to repay the loan without asking the borrower. That is why a small move can end a position outright. The leverage loop had made the whole thing sensitive to even a minor wobble in the collateral price.
How the price feed made the call
The price Morpho used to decide whether collateral was too low came from what the industry calls an oracle. That is a feed that tells a lending platform what collateral is worth. In this case, the oracle took whichever of two numbers was lower. One was PT-reUSD’s average trading price over the previous 15 minutes. The other was a fixed schedule that climbs gradually toward $1 at maturity.
Because the wallet’s trade pushed the market price down, the oracle followed it down. That triggered the liquidations. Morpho did not immediately respond to a request for comment on Telegram.
This incident is a reminder that collateral tokens can be sensitive to movements in other parts of the market, especially when traders are using leverage in a loop. The pieces all look fine on their own, but they can turn on each other quickly.