A price move of roughly 3% triggered about $36.4 million of liquidations on the lending platform Morpho early Tuesday, after one wallet’s trade in a related market moved the value of what borrowers had put up as security.
Move of such a percentage are ordinary in crypto, but the borrowers who lost their positions had built strategies that could not survive one.
The collateral was PT-reUSD, a token issued on Pendle and tied to reUSD, a dollar-denominated asset that pays interest to holders. Pendle lets holders split an interest-paying asset into two separate tokens.
One, called the principal token or PT, is a claim on the original money, redeemable for a dollar’s worth at a set date, in this case Dec. 10. The other, the yield token or YT, collects the interest earned between now and then.
The two behave like a seesaw. Both are carved out of the same asset, so their prices have to add up to the whole. When buyers pile into the yield side, they are effectively bidding up the interest, and the principal side has to get cheaper to compensate.