$36 Million Liquidated as Wallet Buys Yield Tokens on Pendle

A large liquidation event occurred on Morpho's platform, affecting two markets and liquidating $36.1 million of debt. The event was triggered by a wallet buying yield tokens in a Pendle pool, which caused the principal token price to drop 2.8%.

The wallet bought reUSD yield tokens worth $9 million, pushing the implied yield to 20%. This action mechanically pushed principal tokens into the pool and lowered their price, triggering liquidations on looped positions.

According to Pendle, the oracle for this market was set up correctly and functioned as intended. The feed Steakhouse configured references the lower of two prices: the principal token's own market price on Pendle as a 15-minute average, and a fixed curve rising to $1 at maturity along a 6% annual discount.

Steakhouse withdrew liquidity from all affected markets as a precaution before restoring it. Onchain data shows that supply in the USDC market fell 25%, and borrows dropped 27% after the event.