Pendle oracle move wipes out $36.1 million in Morpho debt
A thinly traded Pendle yield market triggered $36.1 million in liquidations on Morpho early Tuesday, closing leveraged positions in about 14 minutes while lenders were left whole. Pendle and vault curator Steakhouse Financial both said the price feed did what it was built to do.
The setup is a recurring failure mode in looped yield strategies: the lending market is much larger than the pool used to price its collateral. According to Pendle’s API, the Pendle reUSD pool maturing Dec. 10 holds $8.97 million in liquidity. The Morpho market that accepts its principal tokens as collateral had $67.5 million of collateral against $52.2 million of borrows, with a 91.5% liquidation threshold. Borrowers who had looped positions up to health factors of 1.03 were working with less than a 3% buffer against any price move.
33 liquidations, almost entirely in two markets
By 16:01 UTC, PENDLE was down 4.3% over 24 hours to $1.74 and MORPHO had fallen 5% to $2.52, according to CoinGecko. That compared with a 3.2% decline in total crypto market cap. Both tokens were still higher on the week, with PENDLE up about 29%.
DefiLlama data shows Pendle generated $91,863 in fees on Tuesday, after $54,640 on Monday and $15,306 on Sunday. Its total value locked now stands at $1.18 billion, down 88.5% from $10.3 billion a year ago.
Morpho’s API recorded 33 liquidation events between 04:37:47 and 04:51:23 UTC across the two affected markets. They repaid $36.14 million of debt and seized 38.6 million principal tokens. The USDC market accounted for $35.19 million of the total, while the USDT market accounted for $956,000. Realized bad debt in both markets was zero. The three largest borrowers lost positions of $13.01 million, $11.01 million and $6.83 million. One liquidator contract handled 96% of the repayments.
Those two markets were essentially all of Morpho’s liquidation activity on Tuesday. Every other market on Ethereum and Base combined totaled just $731 over the same day.
Pendle and Steakhouse say the oracle was correct
Pendle said, "The oracle for this market was set up correctly and functioned as intended. This was not a misconfiguration, despite the unfortunate outcome."
The feed configured by Steakhouse references the lower of two prices: the principal token’s own market price on Pendle, using a 15-minute average, and a fixed curve that rises to $1 at maturity along a 6% annual discount. When the market price fell, the 15-minute average became the reference and cut collateral values on looped positions. Positions already below a health factor of 1.03 crossed the liquidation threshold, Pendle said. The Pendle Ecosystem Vault on Morpho was unaffected.
Steakhouse said the move was 2.8% on high volume and that its systems withdrew liquidity from all affected markets as a precaution before restoring it. Onchain data lines up with that account: supply in the USDC market fell 25% from $82.9 million at midnight UTC to $62 million by mid-afternoon, while borrows dropped 27% from $71.1 million at 04:00 UTC.
Pendle’s integration guide recommends a 15- or 30-minute window, "but it can vary depending on the market," and tells integrators to pick "a market with high trading activities & deep liquidity."
Onchain trail points to a yield-token buyer
Security firm PeckShield said a wallet ending in 690d market-bought reUSD yield tokens, pushed implied yield to 20%, then dumped the position, triggering roughly $36.39 million in liquidations on looped principal-token positions. Buying yield tokens mechanically pushes principal tokens into the pool and lowers their price.
Onchain analyst 0scar reconstructed the sequence differently. He said the wallet bought yield tokens on a time-weighted schedule, pushed 5.4 million principal tokens into a pool holding 3.1 million, dragged the 15-minute average price to $0.9647 and flagged a borrower sitting at 90.9% loan-to-value.
"Liquidator and YT buyer are the same entity, because the liquidator paid for the buyer’s gas multiple times," 0scar wrote, estimating realized gains at "at least $360k." The Defiant confirmed onchain that in one transaction at 04:38:23 UTC, an address ending 7F44 borrowed $9.94 million of USDC and supplied 11,710,808 principal tokens in the same block as the $11.01 million liquidation that seized exactly that many. 0scar’s profit figure has not been independently confirmed.
Re Protocol, which issues reUSD, said it is "investigating whether the PT market price was intentionally manipulated and are working with the relevant teams on a safer oracle configuration." No protocol involved has said manipulation occurred. reUSD itself was unaffected: Re’s API shows net asset value at $1.0968 with a 6.44% APY, while DefiLlama puts circulating supply at $212.5 million, up 27% in a month.
Public warning came eight days earlier
The size mismatch was documented in public before the liquidation event. On Aug. 17, a user posting as SrAugust wrote on the Morpho governance forum that the market showed "55,887,325 borrowed against 7,309,040 liquid," and said the figures could be reproduced from Morpho’s public GraphQL endpoint in a single query. The comment appeared in an RFC filed by Sigma Labs in June proposing a collateral-transparency standard, one of whose four stated problems is that a passive vault depositor’s capital is "silently leveraged by the looper's activity."
Steakhouse had described the tradeoff in a June 2025 forum post: "Market-based oracles are closer to the 'true' price of the collateral but are often thinly traded and can be manipulated." Its April 2026 oracle upgrade moved BTC and ETH markets to Chainlink feeds with a 2% deviation threshold, but it did not cover Pendle principal-token markets.
Steakhouse is Morpho’s largest curator with $2.16 billion in assets, though its own Smokehouse vaults held about $8.3 million of exposure to this collateral as of Tuesday afternoon, after the withdrawals it described. The four largest suppliers to the USDC market are addresses holding between $7.2 million and $17.5 million each, none of them listed vaults, meaning most of the market was supplied directly.
The episode is the inverse of the $25 million Resolv exploit in March, where a hardcoded oracle held wstUSR at $1.13 while it traded at $0.63 and left more than $10 million of bad debt at Fluid alone. Here, a market oracle repriced fast, protected lenders and liquidated borrowers. That was the case curators made in April, when Steakhouse told The Defiant that its vaults had absorbed zero bad debt and kept full withdrawal liquidity through a drawdown that pushed about $238 million of liquidations through Morpho in late January and early February.