Author: Frank, PANews

In the field of cryptocurrency, DeFi has become one of the most mature tracks, and cryptocurrency lending, as one of the largest businesses in DeFi, has also become the most important economic development engine in the cryptocurrency market. However, this mature track continues to see innovation and is attracting attention from capital.

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

Whether in the cryptocurrency field or the traditional internet, this is a unicorn-level financing scale. With a star-studded lineup and a huge financing, the market has once again shown great curiosity about Morpho, a well-established DeFi project.

Turning Financial Infrastructure into Public Facilities

Morpho is a decentralized cryptocurrency lending protocol that was founded in 2021 and received an $18 million investment led by a16z and Variant in 2022. With this round of financing, the total amount of financing has reached $68 million. In 2022, Morpho's mainnet went live, and its initial main product was the Morpho Optimizer, an optimization layer on top of Aave and Compound that can increase user interest rates. After 2 years of development, Morpho has evolved into a completely independent platform, no longer relying on Aave or Compound. Currently, Morpho's asset supply has exceeded $3 billion, making it one of the most widely used DeFi protocols in the cryptocurrency field.

Compared to other mainstream DeFi protocols, Morpho adopts a permissionless market creation mechanism, allowing any participant to set up new lending markets. The design of the protocol is mainly aimed at increasing capital utilization and enhancing risk management flexibility. This is reflected in each market containing a loan asset and a collateral asset to achieve different interest rates for each market. Morpho also introduces non-custodial "Vaults" to optimize fund allocation across markets.

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

"Financial infrastructure should not be private or state-owned, but should be owned by everyone in the world—this is in the public interest of all humanity, just like the internet," therefore, Morpho's products mainly revolve around decentralization, permissionlessness, and original design.

In general, most platforms are designed as independent lending products with fixed functions and usage. Morpho, on the other hand, is designed as a foundational layer that allows for the construction of various financial products and services on top of it. Additionally, unlike traditional platforms where risk parameters are determined by central governance, Morpho allows markets to form naturally, and risk management can be decentralized on top of the protocol.

Annual Growth Exceeds 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 collateral asset market. Its main feature is that each market is independent, can set higher collateral factors, and automatically adjust interest rates through the use of the AdaptiveCurveIRM model.

Another feature of Morpho Markets is isolated lending markets, where losses are immediately shared among all suppliers within that specific market (i.e., users providing funds to that lending pool) when losses occur. This design does not require automatic risk sharing among all users.

Morpho Vaults (formerly MetaMorpho) is a professional lending vault planned by external risk experts, offering different risk/reward options. Each vault focuses on a specific loan asset (such as USDC), and vault managers can receive up to 50% of the total interest as a performance fee, although currently, most insurance vaults only charge 10%. To attract users, some insurance vaults also choose a 0% fee. For ordinary users, the same collateral can have multiple choices. Each vault has different returns and risk coefficients, so even with the same asset, users can deposit into different vaults based on their risk preferences to earn returns.

For individual users, Morpho provides customized risk configurations, potentially achieving better returns and transparent non-custodial solutions. As a borrower, the Morpho protocol can achieve a higher loan-to-value ratio, lending out more funds and increasing capital utilization. In addition, Morpho currently does not charge platform fees on the borrowing side, while similar lending platforms typically charge 20% to 30% in fees, making borrowing costs lower and interest rate differentials smaller.

For developers or businesses, Morpho allows for the rapid deployment of vaults and markets, custom strategies, and governance. It also provides complete control over the built vaults and markets. Additionally, sharing infrastructure can save development time and costs.

According to official data, as of September 12th, over 300 markets have been created on Morpho, with over 90 Vaults. The total deposits exceed $2 billion, and the total borrowing amount is approximately $727 million. Over the past year, the total deposit volume on Morpho has grown by about 180%, and total borrowing has grown by about 72%. Currently, Morpho's TVL data ranks fifth in the entire lending market.

In terms of deposit interest rates, Morpho currently offers an APY of up to 11.4%, and several Vaults have an APY of over 4%, generally higher than Aave (with APY ranging from 3% to 5%), while borrowing rates are similar to Aave's. Additionally, because Morpho supports self-built lending vaults, borrowing on Morpho can support a wider range of assets.

Token Transfer Switch May Open Before the End of the Year

Previously, Morpho launched the governance token MORPHO, with a maximum total supply of 1 billion tokens. As of now, MORPHO is still non-transferable and is mainly used for voting rights, incentive mechanisms, and protocol governance. As of September 13th, there are 2059 addresses holding MORPHO. According to official information, users can currently earn MORPHO tokens by using Earn or Borrow on the Morpho protocol, and approximately 4.2% of the total supply has been distributed to users.

In August of this year, Morpho DAO initiated a discussion on the transferability of the MORPHO token. Judging from the prevailing sentiment, the vast majority of users in the community support the idea of making the token transferable. If this governance proceeds smoothly, there is a good chance that the token will be officially launched before the end of the year. Recently, Morpho has also welcomed more collaborators. This includes the deployment of cbBTC by Coinbase and LBTC by Lombard on Morpho. On September 5th, Token Terminal launched the Morpho dashboard. Currently, dozens of ecosystem partners such as Aragon, Contango, Safe, SummerFi, and Stream have built projects on Morpho.

It can be foreseen that with the recent disclosure of a large amount of financing obtained by Morpho, coupled with the ongoing token transfer plan, Morpho may further promote market activity through incentives such as points or airdrops, thereby expanding its market share.

In the official announcement of the financing news, Morpho expressed, "Morpho's potential impact far exceeds the current DeFi market, as the protocol has the ability to become decentralized infrastructure to support a truly global, internet-native financial system." With more changes quietly taking place, Morpho is gradually growing into a new force capable of challenging the industry leader.

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