# PT-reUSD: high-LLTV liquidity risk

Case ID: morpho3
Protocol: Morpho

## Summary

For new tokens, especially derivatives like Pendle PTs, liquidity can be thin. When combined with reasonably high LLTVs, it is demonstrably possible to manipulate the market, so care should be taken when deciding whether high amounts of leverage are advisable for such assets.

This was demonstrated by the PT-reUSD case.

## Context

> To understand this case, first read about [Pendle's principal and yield tokens](https://docs.pendle.finance/pendle-v2/ProtocolMechanics/YieldTokenization/PT).

[PT-reUSD-10DEC2026](https://etherscan.io/token/0xecfafdc7741323a945a163ed068b5a3c43483957) was used as collateral in Morpho markets borrowing [USDC](https://app.morpho.org/ethereum/variable/0x1e9d614631a7df0ec07fb05b2c8cb2491575fd1a63a33bf187a6afb295a4fc64/pt-reusd-10dec2026-usdc) and [USDT](https://app.morpho.org/ethereum/variable/0x6acd18854e43f93f5a90446004c35c72a68af1ad99f08cb247782ce6457914ca/pt-reusd-10dec2026-usdt). Both markets had a 91.5% LLTV. [Armitage documented onboarding the USDC market](https://forum.morpho.org/t/introducing-armitage-by-wintermute-vaults-on-morpho/2269/3) into its Select vault with a $5 million cap.

[Pendle describes PT looping](https://docs.pendle.finance/pendle-v2/AppGuide/PTLooping) as depositing PT as collateral, borrowing against it, using the borrowed funds to buy more PT and repeating the process. Each loop increases leverage and reduces the price movement needed to make the position liquidatable.

## Example

[On 25 August 2026](https://thedefiant.io/news/defi/pendle-oracle-move-liquidates-usd36-million), many highly looped PT-reUSD positions were liquidated after the price of PT-reUSD fell in the associated [Pendle market](https://etherscan.io/address/0x13285bCbc27F92b47B4EDB99D744C07B48C977c0). Some accounts described the address behind the trade as an attacker, although its intent has not been established.

The sequence was:

1. One wallet bought roughly $320,000 of YT-reUSD in the relatively thin Pendle market.
2. This pushed the paired PT-reUSD price down by roughly 3%.
3. Morpho reflected the lower collateral price.
4. Highly leveraged looping positions crossed the liquidation threshold, resulting in approximately $36.1 million of liquidations.

> **Note:** I deliberately didn't include every detail to keep this article from becoming too long. [Oscar's post](https://x.com/0scaronchain/status/2092146862631309772) goes into more detail.

### Who was to blame?

Initial questions focused on whether the vault was misconfigured. For derivative assets such as Pendle PTs, liquidity is often lower than for more established assets. Here, that limited liquidity allowed the PT price to move enough to liquidate highly leveraged positions.

New or derivative collateral at a high LLTV should be flagged for further review before depositing. Leverage makes the depth of the price-forming market part of the risk, and looping can amplify a relatively small market move into a liquidation cascade.

### Links

- [Armitage PT-reUSD onboarding](https://forum.morpho.org/t/introducing-armitage-by-wintermute-vaults-on-morpho/2269/3)

  `forum.morpho.org`

  The July 2026 proposal records the USDC market, oracle, 91.5% LLTV and a $5 million vault cap.

- [Pendle PT collateral guidance](https://docs.pendle.finance/pendle-v2-dev/Oracles/PTAsCollateral)

  `docs.pendle.finance`

  Pendle's guidance discusses PT leverage, TWAP selection and liquidation liquidity.

- [Oscar's on-chain breakdown](https://x.com/0scaronchain/status/2092146862631309772)

  `x.com`

  A detailed reconstruction of the trading and liquidation sequence.

- [Largest liquidation transaction](https://etherscan.io/tx/0x5168462b33f37c2c6c11a8a522697c732d2aed26b92fd2f49339b5dcfe02b648)

  `etherscan.io`

  The largest liquidation identified in the reconstruction.

## Related checks

- [Check Pendle PT TWAP duration](https://www.vaults.rip/checks/#morpho-v2-oracles-5)
- [Flag shallow collateral at high LLTV](https://www.vaults.rip/checks/#morpho-v2-collateral-2)