It seems that Ethereum does not want Bitcoin to play a solo role on the current stage. As the BTC/ETH exchange rate continues to hit new lows, Ethereum finally took the initiative and slowly started the engine. The DeFI ecosystem derived from the Ethereum ecosystem is also ready to move. Since the US dollar interest rate cut meeting a few months ago, the community has been carrying the banner of "DeFi is rising again".
As one of the three pillars of DeFi development, the future development of decentralized lending is highly anticipated. Even the Trump team has intervened and announced the launch of the lending project World Liberty Financial (WLF).
In discussions about who will lead the DeFi revival, Morpho, which recently announced it has secured $50 million in funding and has raised over $80 million in total, is frequently mentioned.
I. What is Morpho?
In the decentralized finance (DeFi) market, decentralized staking has become an important means to enhance blockchain network security and incentivize users. However, despite staking increasing network security, capital efficiency and liquidity remain major challenges. For example, in the lending market, over-collateralization reduces capital efficiency, and when lending demand does not match, funds often remain idle and cannot be fully utilized.
To solve these problems, DeFi protocols have introduced 'point-to-pool' and 'peer-to-peer' (P2P) models. This model can match the needs of both borrowing parties, thereby improving capital efficiency.
The Morpho protocol was created based on this idea, aiming to optimize the capital efficiency of lending pools. It is a lending pool optimizer built on top of lending protocols like Compound and Aave. Through a peer-to-peer model, Morpho can match the needs of lenders and borrowers, improving the utilization of funds while maintaining liquidity and liquidation mechanisms.
Specifically, users can obtain higher annual percentage yields (APY) in the Morpho protocol compared to traditional lending protocols, namely P2P APY, benefiting both lenders and borrowers. Morpho improves capital efficiency through this innovation, reduces idle funds, and optimizes liquidity.
The Morpho protocol is essentially a lending pool optimizer built on mainstream lending protocols like Compound and Aave, matching the needs of lenders and borrowers through a peer-to-peer (P2P) model, thereby enhancing the capital efficiency of the lending pool. The innovation of Morpho lies in that users can enjoy high liquidity provided by platforms like Compound while also obtaining higher APY (annual percentage yield), namely P2P APY, through the peer-to-peer matching mechanism.
Specifically, the Morpho protocol allows users to interact with the Morpho-Compound market, following the same collateral ratios and liquidation mechanisms as traditional Compound. However, unlike the traditional model, when the demands of lenders and borrowers successfully match, both parties can receive higher interest returns than the original underlying protocol. This model addresses the issue of idle funds in traditional staking protocols, allowing for more efficient utilization of funds.
II. Morpho Operating Mechanism
As an aggregator based on existing lending protocols, Morpho optimizes capital efficiency by combining 'peer-to-peer' (P2P) and 'point-to-pool' models, enhancing the capital efficiency of lending pools. The innovation of Morpho lies in that it provides liquidity through existing lending pools (such as Compound, Aave, etc.) and optimizes fund usage through peer-to-peer matching, enhancing the earnings experience for both lending parties.
Combination of point-to-pool and peer-to-peer models
Point-to-pool model: Morpho is built on existing lending pools (such as Compound, Aave) and provides the same liquidity.
Peer-to-peer matching: When users deposit assets into Morpho, Morpho will attempt to match it with the borrower's needs, forming a peer-to-peer lending relationship to enhance the capital efficiency of the lending pool.
Yield enhancement: Through peer-to-peer matching, both borrowers and lenders can achieve higher APY. Specifically, borrower APY is usually higher than lender APY, while through Morpho's matching, both borrowers and lenders can obtain a P2P APY that lies between the two, enhancing the returns for both sides.
Separation of debt and deposits
onComp: The deposit balance is measured through underlying lending pools (such as Compound), represented by cToken or aToken.
inP2P: The portion matched through peer-to-peer lending, where the deposit balance is measured by mToken, representing the funds after matching between borrowers and lenders.
Debt tracking mechanism: Morpho can accurately track users' debts and deposit balances by separately managing deposits and loans between 'onComp' and 'inP2P'.
By introducing a combination of peer-to-peer and point-to-pool models, Morpho enhances capital efficiency and optimizes the lending experience based on existing lending protocols. Both lenders and borrowers can not only achieve higher returns but also enjoy instant liquidity and low-risk lending experiences. Morpho's innovation lies in its capital efficiency improvement through a matching engine while the $MORPHO token brings governance and incentive mechanisms to the protocol, further enhancing its sustainability.
III. Morpho Team and Funding Information
The Morpho protocol was co-founded by Paul Frabot and Vincent Danos and has received support from renowned investment firms including a16z, Variant, and Coinbase Ventures after 9 months of development, raising over $20 million.
IV. Morpho Token Economics
The Morpho token is $MORPHO, with a maximum total supply of 1,000,000,000. Currently, the deployed tokens are non-transferable. Morpho DAO (composed of MORPHO holders and delegates) is responsible for managing the Morpho protocol. The governance system uses a weighted voting system, where the number of MORPHO tokens held determines voting rights.
MORPHO holders can vote on changes or improvements to the protocol, including:
Future initiatives for the development of the Morpho protocol;
Deployment and ownership of the Morpho smart contract;
Open/close the built-in fee switch of the Morpho smart contract;
Its token distribution plan is as follows:
Morpho DAO owns and controls: 35.7% (375,000,000 MORPHO)
Strategic partners: 27.6% (276,000,000 MORPHO)
Founding team: 15.2% (152,000,000 MORPHO)
Morpho Association: 6.6% (66,000,000 MORPHO)
Morpho Labs Reserve: 6% (60,000,000 MORPHO)
Early contributors: 4.8% (48,000,000 MORPHO)
Protocol users and launch pool participants: 4.2% (42,000,000 MORPHO)
V. Analysis of Morpho's Future Value
As an innovative DeFi lending optimization platform, Morpho has strong market potential and technical advantages. It brings more efficient capital utilization and a better user experience to the lending market, aligning with the development trends in DeFi. With more user participation and the continuous development of the ecosystem, the $MORPHO token is expected to become an important asset in the DeFi space.
The continuous expansion and maturation of the DeFi market, especially in areas such as lending, derivatives, and stablecoins, means that the market demand for Morpho will continue to increase. Morpho's innovative model precisely meets the urgent need in the current DeFi market for improved capital efficiency and optimized user experience.
