D eFi is no longer working?
It seems that not many people in the community are willing to talk about DeFi protocols anymore. But on the other hand, the family of former US President Trump is planning to build a new DeFi project, World Liberty FInancial. The popular meme has created tens of billions of transaction volume for Solana Dex. Lido, Uniswap, Pancake and even Ethena, which has suddenly emerged in this bull market, are still the most profitable part of the on-chain protocols. Although the momentum of DeFi is not strong enough, it is more durable and stable.
Among them, the lending platform is one of the tracks with the largest capital capacity on the chain, and it is not an exaggeration to say that it is the most important, because Liquid Staking itself with a higher TVL is to some extent just a Wrap channel, which requires platforms such as Lending and Dex. Has liquidity and broad use cases.
With the entire crypto industry pursuing PMF and actual revenue, many DeFi tricks of relying on subsidies to maintain survival and data are no longer reliable. As the platform effect of DeFi becomes stronger and stronger, there are few DeFi projects that can continue to create new highs in today's market. Among them, the one with the strongest development momentum is Morpho, which has a cumulative financing amount of more than 70 million US dollars.
Morpho announced in August 2024 that it had received $50 million in financing from Ribbit Capital, a16z crypto, Coinbase Ventures, Variant, Brevan Howard, Pantera, Blocktower and more than 100 other investors. Founded during the last bull market, Morpho, which has experienced the trough of the bear market and risen again, has also relied on innovation to embark on a path of nirvana and rebirth similar to Solana and Pendle. Morpho is designed not only to serve end users, but also to support developers and enterprises, with the goal of transcending crypto and becoming the cornerstone of a new Internet-native financial system.
Since its launch, Morpho has accumulated over $3 billion in asset supply, becoming one of the most used DeFi protocols in the world. What’s more noteworthy is that, from “L2” similar to Aave and Compound, to a unique DeFi lending infrastructure, Morpho’s TVL data is even close to the former “parent” L1 Compound, and some data dimensions have even surpassed Compound. Against the background of the market being negative about DeFi, the rise of Morpho has a strong reference for the entire track.
Morpho team background, and Optimizer history and technology
Just like NVIDIA's GPU hegemony, it was developed through step-by-step discovery of usage scenarios and iterations. Morpho also gradually developed from the market segments of improving and optimizing AAVE and Compound.
Morpho, which was born with the DeFi Summer, positioned itself to improve the capital efficiency of existing DeFi protocols in the initial stage of the protocol, "combining the liquidity pool model used by Compound or AAVE with the capital of the peer-to-peer matching engine used in the order book. efficiency combined.
Simply put, the initial version of Morpho temporarily stored users' funds on Aave or Compound to earn the platform's basic APY. If other users have borrowing needs, Morpho will withdraw the funds and lend them to the users in need. This peer-to-peer lending agreement, coupled with many optimizations of the actual process, can improve the problem of keeping funds in the Aave platform's memory, thereby improving capital efficiency.
At this stage, Morpho’s main product is called Morpho Optimizers, which is an intermediary software built by Morpho for existing DeFi lending protocols to improve capital efficiency.
According to historical information found by DeFillama, Morpho Optimizers' peak TVL was approximately $400 million. According to current data, Optimizers can increase APY income by 0.51% and 0.29% on Aave V2 and V3 respectively.
Morpho has a hard-core and solid founding team. The Morpho team is made up of people with technical backgrounds who have spent years working on advanced topics in cryptography and founded the protocol while in college. Paul Frambot serves as CEO and brings his blockchain engineering expertise from Telecom and Ecole Polytechnique in Paris. Merlin Egalite has extensive software engineering experience working at The Commons Stack, Kleros, Blockpulse, and Paris Digital Labs. Mathis Gontier Delaunay, a former vice president of Kryptosphere, is now responsible for research, and Julien Thomas, who has a master's degree in data from the Polytechnique of Montreal, is responsible for guiding development.
As members of the founding team, the above four people have not left the agreement so far, ensuring the continued and timely expansion and development of the agreement. Similar to the popular Founder Mode, new and more competitive products can be quickly iterated on in the ever-changing encryption market. In 2023, Morpho also introduced DeFi OG 0xloth, who previously worked for the stablecoin protocol mStable, to be responsible for Morpho's business work. Team members were also named to the 2024 Forbes “30 Under 30” list.
However, if it is limited to this, it is almost impossible for Morpho to truly stand out. Not only may it become a project comparable to the main agreement, but its importance and valuation space will also be difficult to open. Just like Pendle, another DeFi star, Morpho has grown exponentially by adapting to the market's positive transformation. The subsequent launch of Morpho's main product Morpho Blue put its real direction on the fast track.
Morpho's unique innovation Morpho Blue
TVL went from 0 to nearly 1 billion in less than a year. This is Morpho Blue's data performance. As the core functional module of Morpho today, Morpho Blue has a lot of ingenuity in its design.
Simply put, Morpho achieves professional team management, fund isolation and efficiency by dividing borrowing and lending into two independently controlled hierarchical modules: market and treasury. It not only has the advantages of a modular lending platform similar to Euler, but does not lose the liquidity of a single-chip lending platform like Aave.
The treasury is like VC, and the assets are like LP. Users earn income by depositing assets into vaults curated by third-party risk experts. Each vault has a unique risk configuration and strategy determined by the planner. At the same time, the professional planners who manage the vault will continue to optimize the allocation of vault assets, reducing the occupation of users' time. It’s worth pointing out that while there are managers who formulate and optimize strategies, the funds, like most other lending protocols, are unescrowd and ownership remains with the user.
The marketplace is like a startup protocol to be funded. Morpho allocates funds from all vaults to markets, but can only allocate funds to markets on the planner's whitelist. In Morpho's market, each market contains only one borrowing asset and one mortgage asset, with its own interest rate. The risk of each market is also limited within the market. Because of the market's unique creativity, which limits the risk to vault funds, there is more potential to build markets for more niche assets. Even if unexpected circumstances arise, bad debts are immediately spread among the lenders.
Just like when users are allocating funds, most of them choose prudent investments, and some may choose investments with high risk appetite. Now in Morpho, the combination of treasury and market brings users a reasonable way to allocate funds. method. Morpho does not spread funds across other protocols. Funds are always flowing within Morpho. Specifically, the path of funds is from the lender to the Morpho vault to the Morpho market. A black swan agreement by either party will not result in a 100% loss of funds.
Of course, the fund operation model in Morpho's vault is the well-known over-collateralization model, and because of the vault-market model, both borrowers and lenders have higher efficiency. If you still remember the bad debt problems caused by credit loans in some previous RWA agreements, then you can rest assured that in an over-collateralized agreement, no vault expert can do evil. To give the most intuitive example, if a vault lends USDC using Coinbase's cbBTC as collateral, then your position will be over-collateralized by cbBTC to prevent the risk of bad debts.
Morpho has built a design that allows users to customize their yield and borrowing options based on their risk appetite. For borrowers, higher mortgage rates in the Morpho marketplace increase funding efficiency, and peer-to-peer lending with no additional fees also reduces costs. For depositors, both professional planners and the different risk appetite vaults offered by Morpho are more attractive.
Morpho can be regarded as an enterprise-level hosting platform to some extent, which is open, transparent and traceable. At the same time, it meets the requirements of developers and enterprises to build any functionality they need and maintain full control - without handing over governance to a third party or DAO. In June this year, Sky (MakerDao) used Morpho to build its DAI and USDe lending use cases.
Not only for investors, professional developers and teams can also charge a certain share of the income from the vaults they manage, just like VCs or MM GPs. This will help stimulate the enthusiasm of planners and promote them to increase the revenue of the treasury, thereby increasing the revenue of users.
Gauntlet, a professional encryption research institution that previously cooperated with the Aave platform, chose to terminate its agreement with Aave in 2024, instead cooperated with Morpho, and served as the planner to open the Morpho vault. Morpho provides risk managers such as Gauntlet with a more open and scalable Kit model. Gauntlet’s Cannon said in an interview with CoinDesk that Aave DAO pays Gauntlet a fixed fee every year, but his team prefers that its compensation increases with performance. Morpho, on the other hand, offers risk managers the potential to earn more profits with greater flexibility.
From optimization to reconstruction, Morpho’s journey
In the article Morpho’s Mission: Turning Financial Infrastructure into a Public Good , the Morpho team breaks down the reasons for the fundamental changes to the protocol: The team initially focused on a specific challenge – optimizing existing crypto lending services. But it quickly became apparent that systemic improvements would require completely rebuilding the lending market from the ground up, not as a specific product or service, but as a financial infrastructure that anyone could use to build their own products and services.
Morpho is also aware of the problem. After establishing its mission, it rebuilds the protocol step by step, and finally completes the design of a customized lending system that shares liquidity, is open and flexible. In the future, more and more simplified development components will be further introduced to establish close contact with more developers, planners and users.
Hiding the technology in the details, Morpho’s minimalist how-to guide
If the conceptual introduction makes you dizzy, then you might as well get started and experience the product directly. Although there are new concepts of Markets and Vaults, in fact, for ordinary users, Morpho UI design makes it easy to understand without any barriers to use.
As shown in the figure, the income details of USDC in the pool include basic income, third-party rewards and MORPHO tokens.
For deposit users, you can directly filter out the assets you need through the search function on the Eran page. After depositing the assets, you can not only earn the basic income paid by the borrower, but also obtain MORPHO tokens and other assets provided by third parties. Other rewards. Interest is distributed when cash is withdrawn from the vault, and rewards are distributed and can be claimed on the rewards page every month.
Since MORPHO has not yet been circulated, it has not yet been included in the income. However, Morpho has also thoughtfully provided a new function for users who care about the development of the Morpho protocol to calculate the treasury yield rate by adding the MORPHO full circulation market value (FDV).
Morpho is extremely simple to use, but if you are a researcher or potential partner and want to study the specific details, Morpho's detailed documentation and Vaults give you enough introduction and explanation. Taking the borrowing process as an example, the details page not only records the borrowing assets, mortgage assets, liquidated loan-to-value ratio (LLTV) and oracles in detail, but also general information such as total amount, remaining liquidity and APY, liquidation fines, liquidation records and treasury bad records. Account status is displayed. Taking into account the design of Morpho, which vaults the market obtains liquidity from, as well as the special information of the borrowers, are also fully displayed to ensure that the information is transparent and open.
Why can Morpho carry the banner of the new generation of DeFi?
Morpho’s data fundamentals
Today’s agreements tend to focus on revenue. Whether it is Pump fun or friend tech, which is despised by the community, they have completed protocol revenue of more than 10 million US dollars before releasing tokens.
As a heavy-asset lending platform, it has always been the easiest on-chain protocol to generate real cash flow. Morpho has also accumulated US$21 million in fees. Morpho currently does not charge any fees for the protocol, but vault managers can set performance fees for their vaults. The fee is charged on interest generated by the vault, with a maximum performance fee of 50%. It is worth mentioning that during actual operation, the average level of this value is about 10%, and some of them are 0%, which is far lower than Aave's 20-30% reserve factor. This is why Morpho can provide more than Aave. One of the reasons for high efficiency.
After launching on the Base network this year, Morpho's cumulative addresses on the Base network have exceeded 45,000. Compared with the number of addresses in earlier versions, today's Morpho has improved by an order of magnitude.
At present, Morpho mainly supports the mainnet and Base. If more EVM compatible networks and L2 are launched, and token incentives and tradability expectations are added, TVL may soon surpass Compound.
Reject silos and integrate with a large number of DeFi protocols
As Morpho says in its mission - to be a public good, creating financial infrastructure that anyone can use to build their own products and services. To become a DeFi underlying protocol like Uniswap, integration with the entire DeFi track is essential.
In addition to the important DeFi protocols mentioned above, such as MakerDAo, Ethena and Usual, which are in contact with Morpho, Morpho has also integrated various time-tested tools and protocols in the DeFi track such as Safe, Defi Saver, Furucombo, Superform and Instadapp. . You must know that Morpho's deposits exceeded US$3 billion at its peak, and a large number of lent assets were allocated through the assets of professional planners and flowed into various DeFi protocols that we are familiar with.
There are also experienced DeFi users who have completed ultra-long-term arbitrage on Ethena by using Morpho.
Can MORPHO add another spark to the development of the protocol?
MORPHO is the governance token of the Morpho protocol, and the total maximum supply of the token is 1 billion. As of September, MORPHO distribution status is:
- Morpho DAO 34.5%
- 5.4% of users
- Morpho Association 6.7%
- 5.8% reserved for contributors
- Strategic partners 27.5%
- Founding team 15.2%
- Early contributors 4.9%
The Morpho DAO, composed of MORPHO holders and delegators, is responsible for governing the Morpho protocol. The governance system adopts a weighted voting system, and the number of MORPHO tokens held determines the voting weight.
MORPHO token holders will be able to deploy and own Morpho smart contracts (related to the protocol’s support for other networks), Morpho Optimizer and Morpho’s fee switch (related to the protocol’s revenue), decentralized front-end hosting and The protocol governs and manages DAO funds to vote on changes.
Although the MORPHO token is extremely important to the protocol, it is currently non-transferable like the token EIGEN of another important protocol Eigenlayer. This also means that it cannot be traded on DEX, let alone those heavyweight CEX.
But tokens can be made transferable through DAO voting. Morpho DAO is currently discussing the transferability of MORPHO, and the token is likely to be officially launched before the end of the year.
During the discussion, some community members suggested that MORPHO introduce veToekn and introduce more incentives to expand the number of token holders and the protocol’s TVL and other overall information; let MORPHO tokens adopt a JLP-style repurchase strategy. This move Tax issues related to staking can be avoided and no tokens are required to be staked
DeFi has not died, it has just changed its development method and become a habit of all participants, and it has also become an indispensable foundation in the industry. The valuation of DeFi has gradually stabilized, and now that the development mode is changing, DeFi is once again focused on finding a business model for long-term sustainable development of the project, and promoting the development of the project through innovation and reality. Morpho's DeFi projects that have the courage to introspect and finally find new market fit points through innovation can be said to be rare in the impetuous encryption market.
