reUSD is a dollar-denominated token that earns a return
Pendle is a marketplace that separates an income-producing asset into two pieces: Principal Token and Yield Token
PT-reUSD is a tradable claim on the principal portion of reUSD
Morpho provides blockchain-based lending markets
a borrower on a morpho market can: deposit PT-reUSD as collateral. Borrow another asset against it. Keep the loan only while the collateral remains sufficiently valuable. anyone can create a morpho market
oracle is a price-reporting mechanism for such (morpho created) markets. the market reacts to the oracle, not to the actual thing happening
Leverage means using borrowed money to make your investment larger and liquidation means an event where you lose your collateral loses value
since PT-reUSD is the principal portion of reUSD on Pendle market, any significantly large trade can push PT-reUSD's market price down
if you keep it down long enough for oracle to record that lower price, keep track of highly leveraged borrowers to become liquidatable and profit by liquidating them (anyone can liquidate anyone else in a morpho market)
basically an economic attack. oracles can be manipulated
“reUSD was unaffected” does not mean nobody lost money. It only means Re claims the base reUSD product itself remained intact.
The problem occurred in additional layers built on top:
reUSD -> Pendle PT-reUSD -> Morpho loan -> leveraged borrower
A market-price movement in the Pendle PT-reUSD oracle used by a third-party Morpho market triggered liquidations of leveraged PT positions. reUSD itself was unaffected and the Morpho market incurred no bad debt. We are investigating whether the PT market price was intentionally manipulated and are working with the relevant teams on a safer oracle configuration.