Author: Frank, PANews

In the field of encryption, DeFi is already one of the most mature tracks. Crypto lending, as one of the largest businesses in DeFi, has also become the most important economic development engine in the encryption market. However, this mature track still has innovations and is also gaining attention from capital.

Not long ago, the decentralized crypto asset lending protocol Morpho announced that it had received $50 million in financing led by Ribbit Capital, with participation from many well-known institutions including a16z crypto, Coinbase Ventures, Variant, Pantera, Brevan Howard, Kraken Ventures, Hack VC, and IOSG.

Whether in the crypto field or the traditional Internet, this is a unicorn-level financing scale. The star lineup plus the huge amount of financing have once again aroused great curiosity in the market about Morpho, a veteran DeFi project.

Transforming financial infrastructure into a public utility

Morpho is a decentralized cryptocurrency lending protocol. The project was founded in 2021 and received $18 million in financing led by a16z and Variant in 2022. Including this round of financing, the total financing amount has reached $68 million. In 2022, Morpho's mainnet was launched. Initially, its main product was Morpho Optimizer, an optimization layer on top of Aave and Compound that can increase users' interest rates. After 2 years of development, Morpho has transformed into a completely independent platform that no longer relies on Aave or Compound. At present, Morpho's asset supply has exceeded 3 billion US dollars, making it one of the most widely used DeFi protocols in the crypto field.

Compared to other mainstream DeFi protocols, Morpho adopts a permissionless market creation mechanism that enables any participant to set up new lending markets. The main design goal of the protocol is to improve capital utilization and enhance risk management flexibility. Specifically, each market contains a loan asset and a collateral asset to achieve different interest rates for each market. Morpho also introduces a non-custodial "Vaults" vault function to optimize cross-market capital allocation.

These designs stem from Morpho's mission to make financial infrastructure a public good. Morpho proposes that the creation of markets and vaults on the protocol is permissionless, thereby encouraging competition and innovation.

"Financial infrastructure should not be private, nor state-owned, but globally owned - it is a public good for all mankind, just like the Internet", therefore, Morpho's products are mainly designed around decentralization, permissionlessness and originality.

Generally speaking, in terms of underlying design, most platforms exist as independent lending products with fixed functions and usage. Morpho is designed as a base layer that allows a variety of financial products and services to be built on top of it. In addition, unlike traditional platforms where risk parameters are determined by central governance, Morpho allows the market to form naturally, and risk management can be done in a decentralized manner on top of the protocol.

Annual growth of over 180%, breaking into the top five in the industry

Currently, Morpho has launched two main products, Morpho Markets and Morpho Vaults. Among them, Morpho Markets is a simple, immutable single loan and mortgage asset market, the main feature of which is that each market is independent, can set a higher collateral factor and automatically adjust the interest rate by utilizing the AdaptiveCurveIRM.

Another feature of Morpho Markets is the isolated lending market. The advantage of this feature is that when a loss occurs, the loss will be immediately shared by all suppliers within that specific market (i.e. users who provided funds to that lending pool). This design does not require any risk to be automatically shared among all users.

Morpho Vaults (formerly MetaMorpho) are professional lending vaults curated by external risk experts, offering different risk/return options. Each vault focuses on one loan asset (such as USDC), and vault managers can charge up to 50% of the total interest as a performance fee, but currently most vaults only charge 10%. In order to attract users, some vaults also choose 0 fees. For ordinary users, there are multiple options for the same collateral. The returns and risk factors of each vault are different, so even if there is only one asset, users can deposit it in different vaults to obtain returns based on their risk preferences.

For individual users, Morpho provides customized risk configuration, which may achieve better returns and transparent non-custodial solutions. As a borrower, the Morpho protocol can achieve a higher collateral ratio, thereby lending more funds and improving the utilization rate of funds. In addition, Morpho currently does not charge platform fees for borrowers, while similar borrowing platforms usually charge 20% to 30% fees, which can make borrowing costs lower and the spread smaller.

For developers or enterprises, Morpho can quickly deploy vaults and markets, customize policies and governance, and have full control over the built vaults and markets. In addition, development time and costs can be saved by sharing infrastructure.

According to official data, as of September 12, there are more than 300 markets created on Morpho, and more than 90 Vaults. The total deposits exceed 2 billion US dollars, and the total loans are about 727 million US dollars. In the past year, Morpho's total deposits have increased by about 180%, and the total loans have increased by about 72%. Currently, Morpho's TVL data ranks fifth in the entire lending market.

In terms of deposit interest rates, Morpho currently has a maximum APY of 11.4%, and there are multiple vaults with APY above 4%, which is generally higher than Aave (APY is basically between 3% and 5%), while the borrowing interest rate is similar to Aave. In addition, since Morpho supports self-built loan vaults, borrowing on Morpho can support more types of assets.

Token transfer may be turned on before the end of the year

Previously, Morpho launched the governance token MORPHO, which has a maximum total supply of 1 billion. As of now, MORPHO is still non-transferable and is mainly used for voting rights, incentive mechanisms and protocol governance. As of September 13, there are 2,059 MORPHO holders. According to the official introduction, currently, users can earn MORPHO tokens by using Earn or Borrow on the Morpho protocol, and currently about 4.2% of the total supply has been distributed to users.

In August this year, Morpho DAO initiated a discussion on liberalizing the transferability of MORPHO tokens. Judging from the trend, the vast majority of users in the community support liberalizing transferability. If this governance goes smoothly, there is a high probability that the token will be officially launched before the end of the year. Recently, Morpho has also welcomed more partners to join. Including Coinbase's newly launched cbBTC and Lombard's LBTC will also be deployed on Morpho. On September 5, Token Terminal launched the Morpho dashboard. At present, dozens of ecological partners such as Aragon, Contango, Safe, SummerFi, Stream, etc. have built projects on Morpho.

It is foreseeable that with the large amount of financing Morpho recently disclosed and the token transfer plan that is being promoted recently, Morpho may be able to further promote market activity through incentive activities such as points or airdrops, thereby expanding its market share.

In the announcement of Morpho's official financing news, it was stated that "Morpho's potential impact far exceeds the current DeFi market, because the protocol has the ability to become a decentralized infrastructure to support a truly global, Internet-native financial system." As more changes happen quietly, Morpho is gradually growing into a new force capable of challenging the industry leader.