DeFi Liquidations Amplified: $36M Losses from 3% Price Decline
The Ethereum-based lending protocol Morpho witnessed a significant liquidation event on August 25, triggered by a mere 3% price decline in the Pendle principal token PT-reUSD. This token is tied to reUSD, a dollar-denominated asset that pays interest to holders and underlies leveraged borrowing positions.
The trigger for this event was one large trade involving YT-reUSD, which pushed implied yields higher and reduced the value of the paired PT-reUSD token. As a result, PT-reUSD fell approximately 3%, causing borrowers who had deposited it as collateral on Morpho to cross their liquidation thresholds.
Despite the underlying collateral moving only a few percentage points, the liquidations reached around $36.4 million, highlighting the amplifying effect of leverage in DeFi markets. This event serves as a reminder that DeFi risk cannot be measured solely by token volatility and emphasizes the importance of considering factors such as collateral structure, leverage, oracle design, market liquidity, and liquidation thresholds.