Author: TechFlow
Although MEME has been popular in the past few months and the market has lacked interest in DeFi, with the implementation of interest rate cuts, the community has rekindled its confidence in "DeFi's resurgence". 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 the discussion of who will lead the DeFi revival, Morpho, which just announced $50 million in financing in early August and has accumulated more than $80 million in financing, has been frequently nominated.
Based on such an astonishing financing scale, more people began to wonder:
The competition in the lending market is fierce. Why does Morpho stand out? What is Morpho planning after receiving a new round of huge financing?
The name of the Morpho project can be literally translated as "Flash Butterfly", and its project logo also resembles a butterfly with spread wings. In fact, Morpho is also staging a stunning "metamorphosis": from the earliest Morpho Optimizer in 2021, a lending product based on Aave and Compound, to now committed to combining decentralized finance with the Internet's basic protocol layer to promote the transformation of private financial infrastructure into public products.
How did this "butterfly change" take place? How does Morpho, as a financial infrastructure, enable the development of lending, DeFi, and even the entire financial industry?
This article aims to walk through Morpho’s transformation journey.
Morpho promotes the transformation of private financial infrastructure into public products
Why become a financial infrastructure?
Morpho believes that the current decentralized lending track has problems such as mainstream asset concentration, low capital efficiency, unsatisfactory interest rates and poor user experience. Morpho aims to bring optimization. Financial infrastructure is the basic system for multilateral market participants to come together to solve financial business, but the current financial infrastructure stack has problems in accessibility, fragmentation, interoperability, efficiency and flexibility.
In order to make systematic improvements to the current lending track, the lending market needs to be completely rebuilt from scratch. Therefore, Morpho aims to build a layer of universal infrastructure that anyone can participate and build on, thereby further breaking through the boundaries of DeFi and unleashing innovation.
From a project perspective, people in the crypto world believe that, compared to a single product, becoming an "infrastructure" is not only a reflection of the strength of the project itself, but also has a higher development ceiling. The decentralized lending TVL has surpassed Dex and has become the track with the largest amount of funds in the DeFi field. Becoming the basic layer of the lending field also makes Morpho's future growth potential more convincing.
Why must the financial infrastructure that Morpho aims to build have public product attributes?
The answer is obvious. If the infrastructure is private, it will be more inclined to serve a certain entity, and its purpose is not so pure in truly promoting the development of the industry.
Morpho defines financial infrastructure as a "public resource" that is available to everyone without reducing its availability. All codes and rules are open and transparent, and the only thing users need to trust is the verifiable technology itself.
So, what kind of public product financial infrastructure is Morpho committed to building?
Morpho aims to build an Internet-style decentralized infrastructure that not only leverages the strengths of blockchain, but also revolutionizes the crypto world through its permissionless and highly flexible features, and has the ability to expand its service scope to the global financial system.
Therefore, the public product financial infrastructure that Morpho is committed to building has the following characteristics.
First of all, the base layer follows the basic principle of decentralization. The base layer has verifiable security, providing participants with a trustless security foundation, and its accessibility and functionality are stable and will not be affected by single point failures, so participants can integrate with confidence.
Secondly, the base layer is permissionless. It is open to anyone and provides a high degree of flexibility and freedom, allowing any developer to join and provide services to any user, thereby further expanding the scope of services and innovation vitality.
Most importantly, this base layer is raw and aggregated. Many people view Morpho as a modular solution, which is a misunderstanding. In fact, Morpho is an aggregated solution that combines the advantages of integrated lending and modular lending. The overall architecture is divided into two levels:
Original Market Layer: The minimal, immutable, and flexible designs not only give this layer strong security advantages, but also excel in connecting various financial applications and supporting the reuse of the same instances in different use cases.
Modular layer based on the original market layer: committed to providing personalized support in user experience, liquidity and risk management.
In this way, the Morpho lending solution achieves multiple advantages:
In terms of security, thanks to a rigorously audited, formally verified, and immutable code base, various types of lending solutions will be built on a strong security foundation, and upgrades or changes to a single module will not affect other templates.
In terms of flexibility, Morpho not only does not require permission, but also avoids a series of problems brought about by a single liquidity pool and risk management in an integrated lending solution, supporting anyone to easily participate and build lending of various assets, risks, and returns.
In terms of liquidity, in traditional modular lending solutions, each pool has different logic and assets, which not only leads to liquidity fragmentation, but also creates a complex user experience. In Morpho's layered design, the original market can be reused, and different modules can aggregate liquidity through the original market.
Morpho believes that if financial services can be run on a truly decentralized, permissionless, flexible and efficient public financial infrastructure, finance will usher in a new round of explosive development.
Although such a public product-type financial infrastructure sounds very attractive, it is more like a "this, this, and more" concept. So how does Morpho achieve this transformation?
Implementation: How do Morpho Markets and Morpho Vaults revolutionize the lending experience?
The lending market is essentially a matchmaking of the needs of “borrowers” and “lenders”. Morpho aims to build an open, efficient and flexible platform where anyone can earn income and borrow any asset.
Morpho Markets is a simple, immutable single loan and collateral asset market (corresponding to the original market layer mentioned above), which gives loan market creators a high degree of autonomy. Anyone can deploy an independent loan market by specifying a collateral asset, a loan asset, an interest rate model (IRM), a liquidation loan value (LLTV), and an oracle to connect to.
Additionally, because Morpho Markets lending markets are isolated, when losses occur, they will be immediately shared by users who provided funds to the lending pool, without the need to automatically share any risk among all users.
Morpho Vaults is a professional lending vault curated by external risk experts built on Morpho Markets (corresponding to the modular layer based on the original market layer mentioned above). Each vault contains a loan asset, and different vaults have different risks/returns.
Users can deposit corresponding loan assets into the vault to earn returns based on their risk preferences, and the vault will aggregate liquidity to Morpho Markets to aggregate liquidity and better match the needs of "borrowers" and "lenders."
For ordinary users:
When choosing to deposit assets, users will receive stronger security, more diverse funding participation options, and higher interest returns.
On the one hand, the non-custodial nature of Morpho Vaults gives users greater control over their assets;
On the other hand, users can choose different vaults according to their own profit needs. In order to attract more users to deposit assets, vault managers will not only be committed to formulating more scientific risk/return strategies for the vaults, but will also take the initiative to give benefits to users. According to the rules, vault managers can obtain up to 50% of the vault interest as income, but currently some vaults even distribute all interest income to users.
Currently, the annualized yield of Morpho’s multiple vaults is 4%, with the highest even reaching 11.4%, which is generally higher than other lending protocols.
When choosing to lend assets, users will receive a higher collateral rate, thereby lending more funds and releasing fund utilization to a greater extent. Although Morpho's borrowing rate is only slightly higher than Aave, Morpho currently does not charge platform fees, which can make borrowing costs lower and the spread smaller.
For enterprises and developers:
Based on Morpho, not only can vaults and markets that better meet actual needs (different assets, different risks, different returns) be deployed more quickly and simply, but also full control over vaults and markets can be achieved. More importantly, as a public financial infrastructure, Morpho greatly reduces the development time and cost required for construction through shared infrastructure, while also achieving better liquidity aggregation.
Landing: From Web3 to Web2, Morpho ushers in a new round of ecological expansion
Transformation is a cautious decision, but fortunately, feedback from the market further verifies the correctness of Morpho's choice.
In the past few months, we have seen Morpho's counter-cyclical growth, both in terms of on-chain data and ecological cooperation.
According to the data on the Morpho Analytics page, Morpho currently has a total deposit of more than $2.1 billion, a total loan of more than $770 million, and an on-chain TVL of more than $1.34 billion. Compared with $600 million at the beginning of the year, the TVL has increased by more than 220%. According to the DefiLlama ranking, Morpho ranks sixth in the lending track.
In terms of deployed Markets and Vaults, there are currently more than 333 Morpho Markets and 110 Morpho Vaults created on the Ethereum and Base networks.
It is worth noting that since announcing its entry into the BASE ecosystem in June this year, Morpho has become the fastest growing DeFi protocol on BASE.
Currently, Morpho has a total deposit of more than 153 million US dollars on the BASE chain, a total loan of 46.54 million US dollars, and a TVL of over 100 million US dollars. In addition, there are currently 100 Morpho Markets and 47 Morpho Vaults created on the Base network, which fully demonstrates the activity of Morpho in the BASE ecosystem.
The growth of on-chain data is inseparable from the support of Morpho's prosperous ecosystem. As a public financial infrastructure, Morpho is committed to integrating with financial technology and enterprises, using the power of decentralization to innovate traditional finance while introducing more incremental users to the crypto world through good user experience.
As Morpho said: Fintech in the frontend, Morpho in the backend.
We have indeed seen the implementation of this concept in Morpho's ecosystem.
According to the official website, the Morpho ecosystem currently includes more than 200 projects, including major DeFi projects such as Elixir, Aragon, Contango, Safe, SummerFi, and Stream, all of which have chosen to be built on Morpho.
As a public financial infrastructure, Morpho is committed to empowering DeFi projects in the crypto world, while also extending to the traditional financial sector, and has achieved remarkable results in areas such as RWA.
In the field of DeFi, the most representative cooperation is MakerDAO (of course, now called Sky). In March this year, Spark, a lending protocol under MakerDAO, deployed $100 million in new DAI liquidity through Morpho. The funds were allocated to the sUSDe/DAI and USDe/DAI markets. Users can borrow Ethena's stablecoins USDe and sUSDe through efficient leveraged positions supported by MakerDAO, and use Maker's liquidity to increase exposure to sUSDe and USDe. According to many KOLs, MakerDAO's move is aimed at responding to Aave's launch of its stablecoin GHO and consolidating its competitiveness in the DeFi field.
BTCFi is a popular narrative in this cycle, and Morpho has not missed it. The cbBTC recently launched by Coinbase and Lombard’s LBTC will also be deployed on Morpho.
In the field of innovation in traditional finance, Morpho has been making frequent moves recently:
In August, Morpho announced a partnership with blockchain technology company Centrifuge and top exchange Coinbase to launch a real-world asset (RWA) lending market for institutions. The market is based on Coinbase's second-layer network Base and the Morpho Vaults system as technical support, and uses three tokenized U.S. Treasury bonds including Centrifuge's Anemoy Fund, Midas's short-term U.S. Treasury bonds (mTBILL) and Hashnote's U.S. Yield Coin (USYC) as collateral, aiming to provide instant liquidity without the need to redeem U.S. Treasury bonds.
Earlier this month, SwissBorg, a fintech platform focused on cryptocurrencies and serving the European market, announced the launch of a USDC yield product that leverages the Morpho protocol. The product is now available to SwissBorg application users, giving them access to Morpho’s WBTC/USDC and wstETH/USDC markets.
This collaboration not only helps SwissBorg users enjoy higher security and risk-adjusted returns without exposure to high-risk assets, allowing crypto novices to easily obtain on-chain income opportunities, but also promotes Morpho to provide access to customized Morpho Vault to a wider range of Web2 users, demonstrating its huge potential to innovate traditional finance and bring explosive growth.
As SwissBorg praised the collaboration: Morpho Vaults provide a customizable infrastructure that enables traditional financial platforms to develop exclusive products, thereby reducing the risks associated with traditional Web3 lending protocols.
It is worth mentioning that the Asian market has always been an important sector in the crypto industry. At this year’s TOKEN2049 event in Singapore, many industry leaders mentioned in their speeches that Asia is leading the development of the crypto market, and the top 40% of countries in terms of user adoption rates are located in Asia.
For this reason, Morpho is also actively seeking cooperation with the Asian market and is expanding its business in Asia, especially in China and South Korea. In the future, we will see more of Morpho's movements in the Asian market, committed to promoting its public financial infrastructure to serve a wider range of Asian crypto users and bring them a more efficient and flexible lending experience.
Future growth: Token conversion sparks heated discussion, participate to win more benefits
No matter how much you say, it's not as good as actually participating in it and experiencing it.
Enterprises and developers can participate in Morpho through the Curate/Build page: Through Curate, participants can use public code to easily create vaults with custom policies, permissions, and governance in seconds, and earn income by managing lending vaults; for more DAOs, fintech, applications, and CEXs, the Morpho Stack can be used to build any custom products, which not only greatly reduces development time and costs, but also allows them to enjoy the advantages of Morpho Stack, such as greater security, flexibility, and better liquidity.
Ordinary users can participate in Morpho through the Earn / Borrow page:
The Earn page lists various Morpho Vaults, and users can choose a vault based on their risk preferences and deposit assets to earn returns. The returns of each vault are different and will fluctuate with the market. The returns are specifically composed of three parts: native returns (interest paid by borrowers), reward APY (provided by third parties), and MORPHO token rewards.
The Borrow page allows users to provide collateral and borrow assets, making the operation simpler, more efficient in capital utilization, and at a lower cost.
Participating in Earn or Borrow is the only way to earn MORPHO tokens at this stage.
As a governance token, the total supply of MORPHO is 1 billion. Morpho DAO is responsible for managing the Morpho protocol. It is composed of MORPHO token holders and delegators. They are responsible for managing the Morpho protocol. Those who hold MORPHO tokens will be able to participate in ecosystem governance and vote on changes to the protocol.
As of August, the overall distribution of MORPHO tokens is as follows:
It should be noted that MORPHO tokens are currently non-transferable, which means that MORPHO tokens cannot be traded or listed on CEX/DEX. In late August, Morpho DAO initiated a discussion on the transferability of MORPHO tokens and received widespread support from the community, which means that MORPHO tokens will most likely be officially launched before the end of the year, when Morpho may usher in user incentive activities such as airdrops. This important milestone has made users have extremely high expectations for Morpho's future growth expectations, and has greatly encouraged users to participate in Earn/Borow to accumulate more profit chips.
On the ecological side, the Morpho ecosystem has the huge advantage of being permissionless and supports anyone to create innovative applications based on it, which gives Morpho itself a huge driving force for innovation. In the future, while continuously improving and optimizing the Morpho Stack, Morpho will continue to work hard on ecological cooperation. On the one hand, it will continue to explore the BASE ecosystem in depth to maintain its growth momentum. On the other hand, it will continue to promote cooperation with leading financial technologies to promote Morpho's public decentralized financial infrastructure to serve a wider range of Web2/Web3 users.
In the crypto world, being able to go through a complete bull-bear cycle is largely a success, but to remain competitive in the long term, it is even more necessary to constantly innovate in the market.
As a veteran DeFi player, Morpho has unleashed innovative potential for Web3 from a single lending optimization product to becoming a truly decentralized, permissionless, flexible and efficient public financial system, breaking through the boundaries of Web3 and bringing innovation to the broader global financial system.
In the foreseeable future, with the continued expansion of the ecosystem and the official launch of the token, Morpho will usher in the next stage of rapid growth and become an important force leading the DeFi revival in this cycle.
