Morpho Borrow Rates Hit Roughly 40% as PT Market Liquidity Dries Up

Borrowing costs in several Morpho markets tied to Pendle yield assets jumped from below 10% to roughly 40% annualized after the Oct. 29 Binance hack, according to OAK Research. By 1 p.m. ET on Oct. 31, the four markets it tracked had cooled to 8.9%–12.7%.

Morpho's market data shows the squeeze in its Ethereum PT-reUSD/$USDC market. Between 4 p.m. and 6 p.m. ET on Oct. 29, supplied $USDC fell from 142.7 million to 128.8 million, while debt barely changed, moving from 129.0 million to 128.8 million. Immediately available liquidity—the difference between supply and debt—fell from 13.7 million $USDC to zero.

The jump turned some leveraged Pendle trades into negative carry, meaning financing costs exceeded the yield earned, OAK said. Pendle's principal tokens, or PTs, are bought at a discount to their redemption value at maturity. Traders can loop those positions by posting PT as collateral, borrowing $USDC and buying more PT. That amplifies exposure to a fixed yield while leaving borrowing costs variable.

OAK reported that PT-reUSD/$USDC's borrow APY jumped from 9.7% to 39.7% during the liquidity drain and stood at 11.7% at its Oct. 31 snapshot. PT-USD3/$USDC reached 38.9% before easing to 8.9%. The strUSD/$USDC and PT-trUSD/$USDC markets touched 38.3% and 42.5%, respectively, before falling to 11.2% and 12.7%.

Why Repayments Did Not Immediately Restore Liquidity

Morpho's interest-rate model targets 90% utilization, the share of supplied funds that has been borrowed. As utilization rises above that target, borrowing rates increase. When lenders remove cash while debt stays largely unchanged, utilization climbs.

Repayments need not break that squeeze if lenders withdraw the newly available funds. In PT-reUSD/$USDC, supply and debt were both 128.8 million $USDC at 6 p.m. ET on Oct. 29. By 5 a.m. ET on Oct. 30, both had fallen to 118.3 million $USDC: less debt, but still no immediately available liquidity at that snapshot.

Binance, whose withdrawal suspension The Defiant previously covered, said on Oct. 31 it was still working toward reopening withdrawals.

By 1 p.m. ET on Oct. 31, PT-reUSD/$USDC had regained about 13.0 million $USDC of immediately available liquidity, according to The Defiant's calculation of Morpho's supply and debt figures.