Roughly $40M of depositor funds are stuck in isolated Morpho lending markets after Main Street Finance’s msUSD stablecoin depegged to ~$0.27, dragging down linked tokens msY, AVLT and AZND.

Morpho’s contracts weren’t hacked — the damage traces to curators. The AlphaUSDC Delta V2 vault (curator AlphaPing) alone had ~$18M stuck in the frozen msY/USDC market, which hit 100% utilization and ~138% borrow rates. AlphaPing also held $10M+ of AVLT exposure and pulled ~$8.5M out before the token slid ~11% — a stark reminder of curator and collateral risk in permissionless lending.