Pendle Oracle Move Liquidates $36 Million

Trades in a thinly traded Pendle yield market triggered $36.1 million of liquidations on Morpho early Tuesday, closing out leveraged positions in about 14 minutes while leaving lenders whole. Pendle and vault curator Steakhouse Financial both said the price feed did what it was built to do.

The setup is the recurring failure mode in looped yield strategies: a lending market sized far larger than the pool that prices its collateral. The Pendle reUSD pool maturing Dec. 10 holds $8.97 million of liquidity, according to Pendle's API. The Morpho market that accepts its principal tokens as collateral held $67.5 million of collateral against $52.2 million of borrows at a 91.5% liquidation threshold. Borrowers who had looped up to health factors of 1.03 were carrying less than a 3% buffer against any price move.

PENDLE fell 4.3% over 24 hours to $1.74 and MORPHO fell 5% to $2.52 as of 16:01 UTC, per CoinGecko, against a 3.2% decline in total crypto market cap. Both remain up over the week, PENDLE by about 29%. Pendle's fees ran to $91,863 on Tuesday, DefiLlama data shows, after $54,640 on Monday and $15,306 on Sunday. Its total value locked is $1.18 billion, down 88.5% from $10.3 billion a year ago.

Fourteen Minutes, Thirty-Three Liquidations

Morpho's API records 33 liquidation events between 04:37:47 and 04:51:23 UTC across the two affected markets, repaying $36.14 million of debt and seizing 38.6 million principal tokens. The USDC market accounted for $35.19 million of that and the USDT market $956,000. Realized bad debt in both is zero. The three largest borrowers liquidated 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 effectively all of Morpho's liquidation activity on Tuesday. Every other market on Ethereum and Base combined totaled $731 over the same day.

Correct By Design

"The oracle for this market was set up correctly and functioned as intended," Pendle said. "This was not a misconfiguration, despite the unfortunate outcome."

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. When the market price fell, the 15-minute average became the reference and cut collateral values on looped positions. Positions already sitting at health factors below 1.03 crossed the liquidation threshold, Pendle said. The Pendle Ecosystem Vault on Morpho was unaffected.

Steakhouse put the move at 2.8% on high volume and said its systems withdrew liquidity from all affected markets as a precaution before restoring it. Onchain data matches: supply in the USDC market fell 25% from $82.9 million at midnight UTC to $62 million by mid-afternoon, and borrows dropped 27% from $71.1 million at 04:00 UTC.

Pendle's own integration guide calls 15 or 30 minutes the recommended window, "but it can vary depending on the market," and tells integrators to pick "a market with high trading activities & deep liquidity."

Who Bought The Yield Tokens

Security firm PeckShield said a wallet ending 690d market-bought reUSD yield tokens, pushing the 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: the wallet bought yield tokens on a time-weighted schedule, pushing 5.4 million principal tokens into a pool holding 3.1 million, which 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, putting 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: its net asset value stands at $1.0968 with a 6.44% APY, per Re's API, and circulating supply is $212.5 million on DefiLlama, up 27% in a month.

Flagged Eight Days Early

The size mismatch was documented publicly before it mattered. 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," calling the figures reproducible from Morpho's public GraphQL endpoint in a single query. The comment landed 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 itself 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, which moved BTC and ETH markets to Chainlink feeds with a 2% deviation threshold, 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 is 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 put about $238 million of liquidations through Morpho in late January and early February.