MORPHO
Transitioning to the MORPHO market: trailing 4h volume going into the dip also shows Bitget dominating, followed by OKX and Binance, with smaller volumes from Bybit and Gate.
The 24h volumes show this to be primarily a CEX token, with smaller volumes on Aerodrome and Uniswap. The data providers for the MORPHO-USD market primarily cover CEXs.
While Coinbase is a marginal market for this token, the prices on the chart below show a significant contrast between Coinbase and all other venues. Every CEX with significant volumes remained tightly packed on the downslope of the dip, and the Chainlink MORPHO-USD price followed these CEXs.
Source for the above graphic: Anthias Labs
Liquidator Behavior:
It’s also important to highlight the critical role that liquidators play in maintaining protocol solvency, and how, on 10/10, limitations within the Moonwell liquidator ecosystem contributed to the accrual of bad debt. On October 10th, the risk factors on the relevant markets were set at 50% close factor and 65% LTV for volatile assets such as AERO and VIRTUAL. These settings, while they may be reasonable under normal conditions, meant that during an extreme market dislocation, the protocol was at risk of extending a very high amount of credit to users and would have to react fast enough to close risky positions.
The primary initial liquidator sourced both its flash loan and swap liquidity solely from Aerodrome. At the time it would have been up to 50% cheaper to source from CEXs. The liquidator not doing so indicates an inefficiency. When prices on external venues diverged sharply, this single-venue dependency of the liquidator prevented the liquidator from accessing cheaper liquidity elsewhere, making it unprofitable to close the entire position, and leaving several positions only partially closed. After the initial mAERO liquidation, the affected account still held ~$2 million in cbBTC collateral, which was not utilized to close the remaining undercollateralized positions - this cbBTC could have been used immediately to close the entire outstanding positions. The 50% close factor indicates that the cbBTC was taken by liquidators in smaller pieces over the proceeding 20 minutes, which ultimately left Moonwell with this bad debt. The liquidator transactions were compiled by Anthias Labs and can be seen at the bottom of their analysis: https://anthias-labs.github.io/moonwell-exploit-10-10-25/.
Summary:
Echoing the post shared yesterday: while October 10th was an unprecedented case where for almost an hour markets remained in a fully-dislocated state, the Chainlink VWAP methodology operated as-intended and provided a single consolidated price in-line with major trading volumes across major venues. When major trading venues have prices with variances of up to 50%, it’s misrepresentative to pick a single venue and declare it as the definitive view of the market.
We would welcome the opportunity to work with Lunar Labs, Anthias Labs, and the Moonwell DAO to evaluate liquidation mechanics, incentive design, and multi-market integrations that could strengthen the protocol’s resilience in future high-volatility events. We are also happy to discuss approaches to broader and more sophisticated liquidator participation that can be encouraged through incentive structures, such as multi-collateral liquidation mechanisms. Empirical analysis across lending protocols shows that higher close factors for volatile assets enable positions to be fully resolved during sharp market moves, reducing protocol insolvency risk. While LTV adjustments can help buffer against previously observed volatility, they are not sufficient to mitigate risks from cross-venue price dislocations of the kind observed on October 10th.