Pendle Yield Token Price Swing Triggers $36M Ethereum DeFi Liquidation

A recent price swing of around 3% on Morpho, a lending platform, triggered a $36 million liquidation event in Ethereum's decentralized finance (DeFi) space.

The incident occurred when a wallet bought large quantities of Pendle's yield token YT-reUSD, which offered an implied annual return rate of 20%. The tokens were then quickly sold, causing the price of the corresponding principal token PT-reUSD to drop by around 3%.

Some traders had deposited PT-reUSD on Morpho and borrowed USDC (1.00 USD) before buying more PT-reUSD in a loop operation, leaving them with only about 3% of their initial collateral as a safety buffer against liquidation.

Morpho uses an oracle price to determine when to trigger liquidations, which is the lower value between the token's 15-minute average trading price and its fixed path towards $1.00 on maturity date. When the market price drops below this curve, a liquidation occurs.