Morpho https://paragraph.com/@morpho The go-to infrastructure for onchain loans. Tue, 19 May 2026 13:09:55 GMT https://validator.w3.org/feed/docs/rss2.html https://github.com/jpmonette/feed en Morpho https://storage.googleapis.com/papyrus_images/b92456402a723cfe63a775379bf0acf1fb1205f625c231402c03d007cbabcda8.png https://paragraph.com/@morpho All rights reserved <![CDATA[Aligning Around MORPHO — The Only Asset For Morpho]]> https://paragraph.com/@morpho/aligning-around-morpho-the-only-asset-for-morpho sOkdCQ3gXd2kyu1ZXm4p Sun, 08 Jun 2025 09:00:02 GMT TL;DR

Morpho will have only one asset—the MORPHO token. This single-asset approach ensures complete alignment between the network of contributing entities and the Morpho DAO (MORPHO token holders).

To clarify this alignment, Morpho Labs is becoming a wholly-owned subsidiary of the Morpho Association to eliminate any perceived conflicts with equity value and ensure that token holders and these contributing entities share the same incentive.

As the Morpho DAO explores introducing protocol fees to support network growth, the Morpho Association advocates for reinvesting protocol fees rather than distributing them, as reinvestment can generate exponentially more value for the network.

Mission & Structural Alignment

DAOs cannot legally execute offchain actions, contracts, or transactions, and rely on legal entities to act on their behalf. For Morpho, the Morpho Association serves this critical function, with a sole mission to grow Morpho's network effects through research, development, and adoption.

This mission is both public and legally enforceable. As a French nonprofit organization, the Association is legally prohibited from having shareholders, distributing profits externally, or being sold. All resources must be directed toward its stated mission.

To clarify and simplify this alignment, Morpho Labs SAS (a French joint-stock company) is becoming a wholly owned subsidiary of the Association through a 100% share transfer (subject to employee approval and other customary conditions), permanently eliminating the possibility of distributing any equity value externally.

Similar to Morpho Labs Inc., a Delaware C-Corp and already a wholly owned subsidiary, Morpho Labs SAS will primarily exist for hiring employees.

This structure has two benefits. First, it guarantees that token holders and these contributing entities share the same incentive. Second, it streamlines the Morpho Association’s ability to execute its mission — growing the Morpho network.

Operating Like A Scale-Up

Crypto has embraced the idea that protocols should distribute fees to token holders just a few years after launch. But this mindset ignores a fundamental question: If you believe in a project's long-term success, do you want insignificant distributions today or exponential growth tomorrow?

Morpho launched three years ago and is still relatively nascent compared to its ambition of replacing traditional financing infrastructure. Most, if not all, crypto projects share a similar reality. Despite some differences, they're functionally equivalent to startups when viewed against traditional business lifecycles.

Would a high-growth startup distribute revenue to shareholders instead of reinvesting in expansion? The answer is almost universally no.

It even took many of the largest tech companies, including Meta and Alphabet, 10 to 20 years before they started distributing dividends.

A crude framework is the following:

  • High-growth projects with effective capital deployment: Reinvest for exponential returns.

  • Mature projects with limited growth potential: Distribute cash so it can be invested elsewhere.

For Morpho, the choice is clear. Things might change in the future. But right now, we're building a foundational network in a rapidly expanding market with significant potential. All revenue should be reinvested back into growth.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[The Morpho Effect: May 2025]]> https://paragraph.com/@morpho/the-morpho-effect-may-2025 EWw6mRvTTBSG9KcAUchT Mon, 02 Jun 2025 17:17:01 GMT tl;dr

🔹 Morpho's vision refined: build an onchain system to price & settle any loan

🔹 Morpho reached $1.4B in total deposits on base

🔹 Safe{Wallet} Earn, powered by Morpho

🔹 Polygon PoS now available on the Morpho App

Highlight of the Month

The Price of Trust & Morpho's Vision

Morpho's co-founder and CEO Paul Frambot lays out the vision for Morpho's future:

Build an onchain system to price and settle any loan.

This requires three key elements:

🔹 creating open & competitive markets

🔹 enabling the expression of different trust assumptions

🔹 minimizing infrastructure impact on these assumptions

Institutional-Grade Yield, within the Safe{Wallet} App

Safe{Wallet}, the leading multisig wallet for institutions and enterprises, now offers a native earn product that is exclusively powered by Morpho.

Agglayer Vault Bridge, Powered by Morpho

Morpho powers the Agglayer VaultBridge, where deposited assets earn yield through vaults curated by Steakhouse, Gauntlet, and other curators on Ethereum.

Based Morpho is now 1.4B Total Deposits Strong

Morpho on Base has become the dominant lending protocol on Base, reaching over $1.4B in total deposits.

New on the Morpho App

Morpho App now supports Polygon PoS

With $180M+ in total deposits since its deployment in March, Polygon PoS is now officially supported in the Morpho App.

Morpho App Light Mode

Vault and Market Pages Refined

What Do the Numbers Say?

  • Apollo ACRED leveraged strategy keeps growing on Morpho Polygon PoS

  • Deposits from Trust Wallet’s integration with Morpho now has $20M+ in TVL

Ecosystem Updates

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[The Price of Trust]]> https://paragraph.com/@morpho/the-price-of-trust-3 kIjejUJ9ipDFTd1dRRV0 Mon, 26 May 2025 08:20:35 GMT At its core, a loan is a promise of repayment. The critical question is how to evaluate the trust assumptions underlying that promise—whether it is collateral, reputation, or legal contracts.

In this article, I explore the fundamental nature of debt, examine how to price the trust assumptions underpinning it, and chart the future of lending infrastructure.

What Is Debt?

Before Money Existed, There Was Debt

Five thousand years ago, humans in small communities managed obligations to one another through relationships and reputation alone.

Initially, these debts were tracked simply by remembering who owed what to whom. As societies grew larger and more complex, this informal system of social memory became inadequate when people no longer knew each other personally. To address this challenge, communities developed formal debt-tracking systems. Among the earliest examples were the clay tablets of ancient Mesopotamia, where cuneiform script recorded debts, interest rates, and payment terms.

This management of obligations and trust formed the foundation of human global cooperation, emerging millennia before the invention of money itself.

Databases & Markets for Trust

Remarkably, we still manage debts much as we did 5,000 years ago with Mesopotamian clay tablets. Whether tracking state bonds, corporate loans, or positions on the Morpho protocol, we use databases to record who owes what and to whom.

For a given loan, one could have:

A key advantage of debt records is transferability between parties who trust the underlying repayment commitment.

For example, if I lost my wallet and needed $1 for a croissant, I could write on paper, "I promise to repay you next week, trust me bro." and sign it and try to sell this obligation to someone to borrow funds. It’s unlikely a stranger ever buys this, but my cofounder, Merlin, probably would. The database entry would look like:

If Merlin needs his $1 back before I can repay, he could find another lender to replace him, effectively selling my signed piece of paper. Instead of repaying Merlin, I'd repay whoever purchased the obligation. Importantly, Merlin only needs to find someone who trusts me, even if they don't trust him. He might approach a family member to transfer the debt:

As people trade this written commitment, we just created a mini-market pricing the trust in my ability to repay.

Trust Assumptions

"Trust me bro"—the simple promise made without any legal or onchain contract—rarely extends beyond personal relationships. This is why most loans rely on stronger trust assumptions. Borrowers can make various commitments to build confidence from more lenders and secure better rates. For example, a borrower might demonstrate:

  • They are a verified human with a credit score of X that will be negatively impacted if I don't repay.

  • They have collateral A, it will be seized onchain at a certain price (enforced by Morpho’s Ethereum contract).

  • They have collateral B, it will be seized offchain at a certain price (enforced by a legal contract under the laws of France)

  • …

Yet, while all these guarantees and credentials can help maximize the borrower’s chances of receiving favorable terms from strangers, the earlier croissant example reveals a fundamental truth: trust is the only must-have for lending.

Although collateral, contracts, and credentials help enhance trust, they aren't prerequisites. All you need for a loan is a lender who trusts a borrower to some degree, and this degree reflects the loan's price through its interest rate.

Once understood, it reframes how we should think about lending infrastructures. Rather than obsessing over precise liquidation mechanics to secure loans, the real unlock lies in building markets to price trust efficiently in all its forms.

How to Price Trust Efficiently?

Create Open and Competitive Markets

When individuals seek a home loan in France, they typically approach just a single local bank for quotes. For corporate loans, companies usually engage only a handful of investment banks to underwrite their bonds, which are then quickly resold to a limited pool of institutional investors like credit funds. In onchain lending, the process follows a similar pattern—borrowers must accept whatever interest rate is set by the lending pool's governance or formula.

In each scenario, lenders and borrowers fail to conduct a truly competitive process across all potential counterparties, inevitably leading to suboptimal pricing and terms.

To achieve maximum efficiency, all loan intents should be broadcast openly, enabling universal discoverability and competitive bidding that delivers the best possible terms for all participants.

Enable Expression of Trust Assumptions

To price trust assumptions, participants first need to be able to articulate, code, and express them formally.

Borrowers should have clear ways to communicate trust assumptions that support their ability to repay, while lenders must be able to specify which trust assumptions they're willing to accept.

This is accomplished through:

  • Creating standardized formats for various types of trust, including economic (e.g., liquidatable collateral), legal (e.g., enforceable contracts), and reputational (e.g., verified credit scores).

  • Enabling these trust assumptions to be precisely communicated between parties.

  • Allow diverse loans to be priced as a function of standardized trust assumptions.

Minimize Infrastructure Trust Impact

The infrastructure should solely facilitate and execute lending agreements without introducing settlement risk or altering trust dynamics.

Cryptography, formal verification, immutable code deployed on a decentralized blockchain, ... are technologies that should help guarantee issuance, settlement, interest accounting, liquidation, … without introducing more trust assumptions.

Embracing the Free Market

A Price for Any Loan

I’m frequently asked “Onchain collateralized lending is great, but will we ever see under-collateralized lending in DeFi?”. After years of thinking about this problem, I believe the distinction is mostly artificial.

Loans should not be defined by the collateral they have, but by trust in the promise to repay. Providing onchain-liquidatable collateral is one factor that increases trust, but as discussed, it's just one among many, including reputation, legal contracts, and more.

Lending infrastructure should allow all active participants to price any trust assumptions:

  • When a borrower provides crypto collateral with liquidation guarantees, the market should price it.

  • When a borrower commits their house as collateral under French law, the market should price it.

  • When a reputable individual says, “trust me bro", even this should have a market-determined price.

When we build systems that efficiently price these diverse assumptions, the artificial boundary between collateralized and undercollateralized lending dissolves, revealing a unified framework for all lending markets.

For years, we believed that lending protocols should not issue a loan if liquidations cannot be enforced. But it shouldn’t be the protocol's decision whether a loan is issued; that’s for the market to decide.

The Future of Morpho

Morpho will fully embrace this vision of a free market for pricing borrowers' trustworthiness.

As a facilitator of trust, Morpho will enable all types of lenders and borrowers to connect. Starting by covering the full spectrum of crypto-collateralized loans, Morpho will be uniquely positioned to expand well beyond the current boundaries of onchain lending markets.

We will introduce some of these innovations in an upcoming article.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[Pioneering the DeFi Mullet: Coinbase in the Front, DeFi in the Back]]> https://paragraph.com/@morpho/pioneering-the-defi-mullet-coinbase-in-the-front-defi-in-the-back QV3TBTGBECoBKeOX4Nyy Tue, 06 May 2025 06:50:46 GMT When fintech companies emerged, they succeeded in reimagining user experiences and distribution channels but remained constrained by traditional financial infrastructure. This created a fundamental limitation: innovative customer-facing solutions built on legacy backend systems.

Blockchain technology and decentralized finance (DeFi) now offer an alternative. Today’s financial innovators can leverage DeFi infrastructure to build products that are more scalable, efficient, and transparent than before.

Introducing the “DeFi Mullet“: intuitive fintech interfaces at the front with decentralized financial infrastructure at the back. It’s not just a new approach to building financial products—it’s a definitive step toward delivering on the promise of a more open, efficient, and resilient financial system.

Enter: Crypto-Backed Loans on Coinbase, powered by Morpho

In January 2025, Coinbase launched crypto-backed loans powered by Morpho, marking it one of the largest-scale DeFi integration for Coinbase to date.

The product gives millions of people in the U.S. (ex. New York) instant access to loans without all the complexities associated with using DeFi directly. The Coinbase app abstracts the blockchain itself, wallets, gas fees, asset wrapping, and more so that customers can seamlessly access USDC loans against their BTC collateral on the protocol, all within the app integration.

In the background, the loans are powered by Morpho, providing instant access to hundreds of millions in USDC liquidity while offering Coinbase customers the most competitive rates and loan-to-value ratios available across existing CeFi or DeFi lending solutions.

Let’s take a closer look at how this example of the DeFi Mullet—fintech in the front, DeFi in the back—paves the way for other exchanges and fintechs to launch more transparent, efficient, and cheaper financial products with significantly lower development overhead.

The Numbers So Far

The product is still in its infancy, but the initial metrics indicate a strong demand for onchain financial services like it.

  • Total Collateral Provided: $287M+

  • Total Active Loans: $135M+

  • Number of Users: 4,846

Date Source here

The DeFi Mullet: Coinbase in the Front, Morpho in the Back

Coinbase In The Front: A Seamless User Experience

By building a crypto-backed loan integration on Morpho, Coinbase can focus its time and resources on crafting an intuitive and simple user experience that completely abstracts blockchain interactions for its millions of customers.

Specifically, Coinbase crypto-backed loans

  • Use Coinbase Smart Wallet as the gateway to onchain transactions

  • Leverage Paymaster to allow gas fees to be paid in cbBTC

  • Authenticate users with passkeys, eliminating the need to sign cryptographic transactions

  • Transfer funds seamlessly between Coinbase accounts and onchain wallets using Magic Spend

  • Operate on Base, a fast and low-cost Ethereum L2 network

Morpho In The Back: Open Financial Infrastructure

Morpho enables Coinbase to significantly reduce operational overhead while making the product more accessible, transparent, and efficient.

The integration taps into the cbBTC/USDC market on the Base instance of Morpho.

The Morpho smart contracts store the cbBTC collateral, match borrowing demand with USDC liquidity, and handle interest, position accounting, and liquidation mechanisms.

By design, Morpho is noncustodial, allowing users to maintain complete control over their positions and the flexibility to repay at any time.

That means Coinbase users can repay their USDC loans and withdraw their cbBTC collaterals at any moment.

Why Build On Morpho's Infrastructure

Morpho enables fintechs to bring their product to market faster and with significantly less development overhead.

Here are the key advantages of building on an open infrastructure.

Immutability

Morpho is fully immutable and governance-minimized.

This design offers two key benefits for integrators:

  1. the protocol will remain unchanged forever

  2. the Lindy Effect strengthens over time, as Morpho Labs’ Head of Integration and co-founder Merlin Egalite explained in this opinion piece.

This unchanging nature is crucial for integrations. Unlike upgradable DeFi smart contracts that pose dependency risks for integrations, Morpho’s immutable design eliminates these concerns—integrators can trust that the protocol will function exactly as it does today, indefinitely.

Additionally, Morpho operates independently of its governance system, making governance attacks like the one that affected Compound impossible.

Open-Source Infrastructure

Instead of building lending infrastructure from scratch, integrators can leverage Morpho’s secure, transparent, and efficient onchain system to launch products faster.

The Morpho Stack is fully permissionless and includes smart contracts, APIs, and SDKs to support custom lending and borrowing use cases.

In addition to existing user and liquidity network effects, Morpho offers built-in financial primitives. Morpho Markets handle position and interest rate accounting at the contract level, eliminating the need for custom development.

Morpho Markets also feature a native liquidation mechanism and an established ecosystem of liquidators. When liquidation is needed, these actors can step in automatically—without requiring Coinbase’s direct involvement—to prevent bad debt.

Global Rails, Deep Liquidity

Another advantage of building on Morpho is the instant access to $6B in existing liquidity, eliminating the “cold start” problem that many lending platforms face. Integrators can rely on Morpho’s existing liquidity to bootstrap any of their lending use cases.

Morpho’s flexible infrastructure empowers businesses to build tailored lending or borrowing products while operating on the same open foundation, unlocking maximum efficiency through shared liquidity and network effects.

As more institutions and DeFi applications integrate Morpho, the stronger the networks effects become.

Security

Morpho follows a strict Security Framework that spans from ideation through post-deployment. Security isn’t merely an afterthought—it’s woven into Morpho’s design philosophy from the start.

During development, Morpho underwent rigorous testing, including Formal Verifications that met the same exact standards used in aerospace and transportation software.

A dedicated team oversees this comprehensive process.

Leading security firms like Spearbit and Open Zeppelin have thoroughly audited Morpho, establishing it as one of the most secure lending protocols in the space.

After deployment, Morpho Labs maintains continuous protocol monitoring and offers a $2.5M bug bounty—larger than Apple’s bounty program—to incentivize white hat hackers to identify potential vulnerabilities.

Transparency

The promise of onchain loans is straightforward yet powerful: users can earn passive income on idle assets or borrow funds without selling their crypto. This core value proposition led to widespread adoption of the first CeFi (centralized finance) lending platforms.

Between 2021 and 2022, platforms like Celsius and BlockFi leveraged this opportunity, becoming some of crypto’s most popular platforms with billions in lending volume.

However, these CeFi platforms functioned as black boxes. Users couldn’t see how their assets were being used, whether collateral was being rehypothecated, or the true source of yields. When market conditions deteriorated, these hidden weaknesses triggered collapses that impacted the entire industry.

The lesson became evident: while crypto loans are in high demand, they must be built on transparent foundations.

In the case of Coinbase’s Morpho integration, collaterals, loans, interest-rates, repayments, and more on Morpho can be monitored and verified directly onchain.

Launch Scalable, Efficient, and Transparent Financial Products Faster

Building on Morpho allows financial applications to be much more open, efficient and resilient with much lower operational and technological overhead for the integrators.

If you’re interested in building on Morpho’s open infrastructure, get in touch via growth@morpho.xyz.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[The Morpho Effect: April 2025]]> https://paragraph.com/@morpho/the-morpho-effect-april-2025 PUl1HlETpBnhUaep20DC Mon, 05 May 2025 08:39:20 GMT April is when 🐛 turns into 🦋.

It was also a big month for Morpho.

A longer than usual round up 👇

(slightly longer) TLDR:

🔹 Coinbase crypto-backed loans reach $130M+ in active loans with $270M+ in collateral

🔹 Trust Wallet and Ledger integrate Morpho for stablecoin earn features

🔹 Apollo's ACRED levered RWA strategy now runs on Morpho

🔹 World DeFi powered by Morpho and new Morpho Mini App in the World App

🔹 Product releases: Morpho Prime, Morpho Lite, and Open-Source Liquidation Bot

Highlights of the month

Trust Wallet Earn and Ledger Earn are powered by Morpho

Trust Wallet and Ledger, the world's largest non-custodial software and hardware wallets, now integrate Morpho as their default earn option.

Morpho is the default Earn engine of Trust Wallet.

Morpho powers Ledger Live's Earn section.

Morpho powers Apollo ACRED levered strategy

Institutional grade RWA yields, amplified onchain with DeFi.

Morpho is powering a looping strategy for Apollo's Apollo Diversified Credit Securitize Fund (ACRED), tokenized by Securitize, operated by Gauntlet and deployed on Polygon.

This marks the first time a private credit fund is used in an onchain structured product to enhance yields — a playbook that more TradFi RWA use cases will likely adopt.

The DeFi Mullet with Coinbase surpasses $130M in active loans

Coinbase has raised the borrowing cap of crypto-backed loans powered by Morpho to $1M for all eligible US users.

Since launching less than 100 days ago, the product has accumulated $270M+ cbBTC in collateral and $130M+ USDC in active loans. (data source here)

25M+ Humans on World App Can Now Lend & Borrow Using Morpho

Lend and borrow from World.

Morpho now powers World DeFi, with the World Coin Foundation providing $5M in incentives to jumpstart growth.

Morpho on World can be accessed within the World App using the Morpho Mini App by Paperclip Labs.

Front end support from other leading third-party interfaces:

🔹 Mobile-native experience from Legend

🔹 Web-first front end from Oku for advanced users

Product Releases

Introducing Morpho Prime products: a vertical of products dedicated to curators and advanced users.

The launch included:

🔹 The Morpho Curator App, a no-code tool for efficiently managing Morpho Vaults across multiple chains.

🔹 The Morpho Rewards App, an all-in-one platform for creating custom rewards programs and discovering reward opportunities.

Open-Source Liquidation Bot

An RPC-based liquidation bot that's fast, efficient, and completely open-source—deployable on any EVM-compatible chain.

Morpho Lite

An open-source, lightweight front end providing access to Earn & Borrow on Morpho on EVM chains beyond Ethereum and Base.

At launch, users can access Morpho on Polygon, World, and OP Mainnet, with more chains coming soon.

Metric Highlights

45%+ of cbBTC on Base are held in the Morpho protocol on Base as collateral and lending asset, generating yield. (source: basescan)

Launched less than 2 months ago, Compound Blue continues to grow on Polygon, with new use cases such as Apollo ACRED looping strategy supporting deployed. (source: defillama)

Ecosystem Highlights

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[The Morpho Effect: March 2025]]> https://paragraph.com/@morpho/the-morpho-effect-march-2025 kqUSCRIaONhW11qtjClk Fri, 04 Apr 2025 06:43:40 GMT A quick recap of the Morpho ecosystem over the past month 🦋

TLDR

🔹 Compound is now building on Morpho

🔹 Vault Risk Disclosures with Credora-powered Risk Ratings

🔹 Seamless migrates from Aave v3 fork to Morpho

🔹 TAC to develop Morpho-powered Mini Apps for Telegram's 1B+ users

🔹 Morpho surpasses $100M in interest generated for lenders

🔹 TruBit Earn+ integrates Morpho, CeFi in the front DeFi in the back

Highlights of the month

  • Compound is now building on Morpho

Originated as a rate optimizer on Compound, Morpho is now the chosen infrastructure of Compound on Polygon PoS, operated by Gauntlet with front end support from Paperclip Labs.

In just two weeks after launch, Compound Blue has surpassed $50M in TVL (including borrowing) and risen to become the second-largest lending protocol on Polygon PoS.

Data Source: DeFi Llama
Data Source: DeFi Llama

Loan migration tools, leverage, and additional features will be available soon.

  • Vault Risk Disclosures are now live

Vault Curators can now voluntarily disclose their curating methodology and market risks, as well as opt in to display Risk Ratings powered by Credora.

Risk Disclosures enhance transparency and standardization in risk curation, making it easier for institutions and Fintechs to manage risk and maintain compliance when integrating Morpho Vaults into their DeFi yield products.

Learn more about Credora's Risk Ratings.

  • Seamless 2.0 is now powered by Morpho

Seamless, the longest-running DeFi protocol on Base, has migrated all liquidity from its Aave v3 fork infrastructure to Morpho.

Morpho now powers both Earn and Borrow on Seamless.

Seamless now turns its focus towards growth, and the development of their upcoming product: Leverage Tokens.

Learn how building on Morpho allows Seamless to metamorphosis.

Hear the Seamless team talking about the rationales behind the migration.

New Features on the Morpho App

  • The refinancing feature lets users seamlessly migrate their borrowing positions without having to close them

  • Advanced Asset Filtering enables quick discovery of specific assets for lending, borrowing, or collateral use

  • The Morpho App now offers a fully mobile-optimized experience with complete Earn and Borrow functionality

Morpho Metrics

  • Coinbase's crypto-backed loans powered by Morpho have reached nearly $100M in collateral and $50M in borrowing, with over 2,500 wallets taking out loans on Morpho in the Coinbase App.

  • Lenders on Morpho have generated over $100M in interest. (data source)

  • Steakhouse Financial reaches $500M in TVL across curated vaults.

  • Morpho curators are on track to generate $8M in quarterly ARR.

Ecosystem News

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[Introducing Morpho Prime]]> https://paragraph.com/@morpho/introducing-morpho-prime PUPWNc5jZTeCY4jXkpGb Thu, 03 Apr 2025 12:42:34 GMT Today, we're excited to unveil Morpho Prime, a new product vertical catering to curators and advanced users who require specialized functionality beyond the Morpho App.

With Morpho Prime, there are now two distinct product lines. The consumer app provides end-users with an intuitive interface to access lending and borrowing opportunities, while Prime products serve those responsible for creating these opportunities. In the future, Prime will also cater to advanced users by providing granular control over their lending and borrowing experience.

Prime products strengthen the ecosystem by equipping participants with tooling that lets them focus on their core strengths and build sustainable businesses. For example, curators can focus exclusively on what they do best—optimizing risk-adjusted yield for depositors—instead of manually checking configurations.

The introduction of the first two products—the Curator App and Rewards App—aims to enhance the experience of key stakeholders: curators and rewards distributors. Over time, Prime will evolve into a comprehensive suite of financial products catering to the diverse participants in the Morpho Ecosystem.

Providing the best curator experience

Morpho's launch pioneered the concept of curators and their subsequent widespread adoption throughout DeFi. By externalizing risk management from lending protocols, Morpho created an open market for curators who wish to build scalable businesses around optimizing risk, return, and liquidity for users.

Curators are fundamental to Morpho's ecosystem, and providing them with effective tools benefits all participants. Without dedicated solutions, curators would need to either interact directly with smart contracts or develop custom applications, diverting time and resources away from key value-added activities such as selecting appropriate collaterals, determining LLTVs, implementing oracles, and setting caps.

The Curator App is designed to provide the single best experience for curators. Purpose-built for their specific needs, the app delivers a powerful, reliable, and intuitive interface for managing Morpho Vaults across multiple chains. This comprehensive interface provides a no-code solution for essential functions such as vault creation, market listing, cap setting, rebalancing, role management, and queue management.

Simplifying rewards for distributors & recipients

Rewards facilitate an important double-sided interaction within the Morpho ecosystem that allows teams to effectively bootstrap adoption: distributors such as asset issuers and protocols can incentivize usage while recipients can earn rewards to amplify their returns.

The Rewards App serves both audiences distinctly. Distributors can create and manage custom reward programs without touching code or smart contracts, making these tools widely accessible. Recipients benefit from streamlined discovery and tracking of the numerous concurrent reward opportunities available to them.

Infrastructure is the product

With Morpho, infrastructure is the product. The goal is not to build a single consumer application that onboards millions but to empower businesses with the infrastructure to bring DeFi benefits to the masses.

Morpho already powers hundreds of DeFi applications and large-scale innovations like Coinbase’s crypto-backed loans. Now, it is positioned to bring broader fintech and traditional financial sectors onchain. But doing so requires building comprehensive products, support systems, integrations, and documentation around Morpho’s core protocols.

The Prime product suite represents Morpho’s ambition to become the definitive lending infrastructure not just for DeFi, but for the entire financial system.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[Seamless 2.0 Powered by Morpho]]> https://paragraph.com/@morpho/seamless-2-0-powered-by-morpho dZG7IMVhSaPsc17DBcuG Thu, 03 Apr 2025 12:19:39 GMT In early 2025, Seamless migrated a majority of its Earn infrastructure to Morpho Vaults, launching Seamless USDC Vault, Seamless WETH Vault, and Seamless cbBTC Vault.

To address the drawbacks of Seamless’s existing smart contract technology — an Aave V3 fork — and to fulfill Seamless' vision for 2025 and beyond, the Seamless DAO recently passed a proposal to migrate its entire lending and borrowing infrastructure to Morpho.

Seamless joins Spark, Moonwell, Compound, Index, and other DeFi protocols building lending and borrowing use cases on Morpho's infrastructure.

Growth of Seamless Vaults

Liquidity in the Seamless vaults has grown rapidly from $0 to $70M, despite market downturns in just a matter of few months. These deposits now constitute a significant portion of Seamless’s total protocol TVL.

Data Source: DeFiLlama
Data Source: DeFiLlama

Enabling the Seamless vision

After launching 18 months ago as Base's first native lending and borrowing protocol, Seamless sought new opportunities for growth in late 2024.

Seamless migrated its Earn infrastructure to Morpho Vaults, leveraging Morpho’s existing network effect on Base, and successfully boosted its growth.

The migration proposal further commits Seamless to building on Morpho, aiming to leverage Morpho’s infrastructure to enhance core offerings like lending, borrowing, SEAM staking, and their recently announced 2025 Prodcut Roadmap centerpiece Leverage Tokens, ERC20s that tokenize advanced leverage strategies and make them tradable in one-click.

  • SEAM stakers will earn a portion of fees from Seamless Vaults on Morpho.

  • Leverage Tokens will access liquidity directly from Morpho.

Migrating to Morpho

Seamless originally built its infrastructure by forking AAVE v3, a decision which presented several challenges over time, as detailed by active Seamless Community member Ras here:

  • High fixed costs ($30K/month)

  • Significant engineering upkeep

  • Limited user yields due to strict borrowing limits

Migrating to Morpho’s permissionless and governance-minimized infrastructure reduces maintenance costs and externalizes risk management to risk curators such as Gauntlet.

This shift allows Seamless to prioritize growth and product innovation.

Leveraging Existing Network Effects

Building on Morpho allows Seamless to access the leading lending protocol on Base, which currently holds over $800M in liquidity (source: DefiLlama).

Additionally, Seamless Vaults can help fulfill the borrowing demand of Coinbase's crypto-backed loans while Leverage Tokens can access liquidity from Morpho and other projects that are powered by Morpho, such as Moonwell's lending vaults.

Within 1 month of launching Seamless Vaults on Morpho, deposits grew from 0 to $70M, underscoring the benefits of building within the Morpho Ecosystem.

As Base and Morpho's ecosystem matures, Seamless will further benefit from expanding liquidity and user growth.

Focus on Product & Growth

A key advantage of migrating to the Morpho Stack is freeing the Seamless team from infrastructure maintenance, enabling a sharper focus on executing the Seamless Roadmap for 2025 and beyond.

Post-migration, the Seamless team will concentrate on expanding borrowing products, exploring real-world asset integrations, and delivering greater value to SEAM DAO and token holders.

Build on the Morpho Stack

Projects benefit from building on Morpho's infrastructure through reduced maintenance overhead, shared liquidity, and proven tech stack.

If your project is considering building on Morpho, get in touch via growth@morpho.xyz.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[OnchainKit Earn: Integrate Morpho Vaults in Minutes]]> https://paragraph.com/@morpho/onchainkit-earn-integrate-morpho-vaults-in-minutes vFSmBIYaCJNlU5l4TSPB Tue, 04 Mar 2025 13:49:02 GMT Base OnchainKit just introduced Earn, a pre-built component that allows any app developer building on Base to integrate any Morpho Vaults into their apps in minutes, not weeks.

Now, anyone, regardless of their blockchain experience, can add an onchain yield component to their applications with a few snippets of code.

Why Onchain Kit, Why Morpho?

Benefits of Onchain Kit

OnchainKit streamlines onchain app development by providing a comprehensive toolkit that combines powerful onchain features with developer-friendly design:

  1. Faster: takes minutes, not weeks to integrate.

  2. Easier: pre-made components are simple to plug and play.

  3. Safer: industry best practices packaged into ready-to-use solutions.

Integrating Morpho Vaults with Ease

Earn is a specific component within the Kit that enables any Base Builders to integrate Morpho Vaults directly into their apps, and allow users to generate interest on their assets in-app.

By leveraging Morpho, developers can avoid building their earn product from scratch, managing risks or bootstraping liquidity. This frees them to concentrate on delivering exceptional app experiences.

Potential Use Cases

Integrating Morpho Vaults allows builders to add an yield component to enrich their app's user experience:

  • Passive income: allows users to earn a yield on USDC and other tokens.

  • Value-added services: opening up new monetization avenues.

  • Daily interactions: frequent updates boost engagement.

  • User retention: active funds increase retention and value.

How Morpho Vaults Work

Morpho Vaults are the entry point for users to lend out their assets for yield.

Assets deposited in a vault are supplied to underlying Morpho Markets.

Each vault has one Curator—an entity or person who sets the risk profile of a Morpho Vault.

Morpho Vaults can be accessed permissionlessly - in the case of Onchain Kit, builders can configure the pre-built component to access Morpho Vaults directly from the App's interface.

Learn more about Morpho Vaults here.

How to integrate Morpho Vaults using OnchainKit Earn

Install OnchainKit:

npm install @coinbase/onchainkit

Set up the Provider in your app (typically in providers.tsx):

'use client';
import { OnchainKitProvider } from '@coinbase/onchainkit';
import { base } from 'wagmi/chains';

export function Providers({ children }) {
  return (
    <OnchainKitProvider
      apiKey={process.env.NEXT_PUBLIC_ONCHAINKIT_API_KEY}
      chain={base}
    >
      {children}
    </OnchainKitProvider>
  );
}

Import the Earn component and styles:

import { Earn } from '@coinbase/onchainkit/earn';
import '@coinbase/onchainkit/styles.css';

Implement the Earn component with your vault addresses:

export default function EarnComponents() {
  const vaultAddresses = [
    '0xa0E430870c4604CcfC7B38Ca7845B1FF653D0ff1',
    '0x7BFA7C4f149E7415b73bdeDfe609237e29CBF34A'
  ];

  return (
    <div>
      {vaultAddresses.map(address => (
        <Earn vaultAddress={address} />
      ))}
    </div>
  );
}

For further customization, check out this developer doc by Onchain Kit.

Build on Based Morpho

Since Earn's release, some based builders have already launched a few concept apps to demonstrate how Earn can be integrated or be the main feature of the app:

Integration Morpho Vaults with Onchain Kit Earn now.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[The Morpho Effect: February 2025]]> https://paragraph.com/@morpho/the-morpho-effect-february-2025 eMn1515zOeImsSQfmLtG Mon, 03 Mar 2025 15:37:29 GMT A digest of the latest news in the Morpho Ecosystem

TLDR:

🔹 The refreshed Morpho App: easier to use, more resilient, and soon to host a range of new features

🔹 Released Pre-liquidation contract that enables enhanced loan management tools

🔹 Morpho multichain expansion continues (Batch 2 includes Unichain, Sonic, Corn, Mode and Hemi)

🔹 Morpho is now the largest lending protocol on Base by TVL and active loans

🔹 Ecosystem updates from Moonwell, Farcaster, Seamless and more

Highlights of the Month

Refreshed Morpho App

Under the hood, architecture improvements of the new Morpho App allows new features to ship at a much faster pace.

Additionally, Rewards are now available for claim every Monday, with a fully automated backend.

Introducing Pre-Liquidations

Pre-Liquidation allows anyone to build borrower-friendly liquidation mechanisms that borrowers can opt-into.

Pre-Liquidations extend what's possible on Morpho, giving integrators the tools to build user-friendly loan management features directly into their apps.

For a deeper dive, check out the full announcement here.

Morpho Everywhere Batch 2

Morpho contracts are now deployed on Unichain, Mode, Corn, Hemi and Sonic, extending Morpho non-core support to 12 EVM chains.

Although these deployments are infrastructure-only, independent contributors such as Moonwell, GFX Labs and Paperclip Labs are pursuing grants independently to deploy front-ends of Morpho on these chains.

Onchain Kit Earn Enables Apps to Integrate Morpho Vaults in Minutes

Onchain Kit from Base announced Earn, enabling app developers to integrate any Morpho Vault via pre-made code snippets.

Integrating Morpho Vaults can now be done in minutes, bringing the benefit of onchain yield to millions via viral apps built on Base.

Morpho Metrics

Despite unfavorable market conditions, Morpho has cemented its position as the largest lending protocol on Base by TVL, and active loans.

Morpho remains the second largest lending protocol on Ethereum.

Morpho is the leading lending protocol on Base. Source: defilama
Morpho is the leading lending protocol on Base. Source: defilama

Sticky USDC Supply

USDC Supply across Ethereum and Base have stabilized over the past month with overall volume topping over 1 billion.

cbBTC/USDC Market Continues to Grow

The cbBTC/USDC market on Based Morpho grew by 50M benefiting from the increasing demand coming from Coinbase cbBTC-backed loans.

Curators Fees

Cumulated Morpho Vault fees for curators are now over $3M

Total vault fees generated on Base for curators are now over $250K

Ecosystem Highlights

  2. Unofficial Morpho Farcaster frame by Samuellhuber.eth enables users to deposit and withdraw from Morpho Vaults directly in Farcaster feeds

Open Roles at Morpho Labs

  1. Senior Web3 Engineer - Frontend

  2. Senior Developer Relations Engineer

Learn more at morpho.org/jobs.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[Introducing Pre-Liquidations: Enhanced Loan Management on Morpho]]> https://paragraph.com/@morpho/introducing-pre-liquidations-enhanced-loan-management-on-morpho UuLvVaYiadplQZOTu6CQ Thu, 27 Feb 2025 14:01:05 GMT Today, we're introducing an open-source pre-liquidation factory that enables any application built on Morpho to offer borrowers opt-in loan management features, such as auto-deleverage and auto-close.

For any Morpho Market, anyone can configure custom liquidation parameters—when they trigger, what percentage of a position closes, and the associated penalties—that would occur prior to default liquidations.

Pre-liquidations expand the Morpho Stack, unlocking new possibilities for applications to improve the borrower experience by giving them more control over their positions.

The mechanics behind pre-liquidations

Before exploring pre-liquidation, let's review how default liquidations work on Morpho.

The liquidation mechanism is consistent across all Morpho Markets. When a position becomes unhealthy, liquidators can repay up to 100% of a borrower's debt (close factor of 1) and receive the collateral plus an incentive based on the Liquidation Incentive Factor (LIF). The liquidator receives the full LIF, with Morpho taking no fees. More details on liquidations and the LIF can be found here.

While this primitive approach favors lenders by providing strong liquidation guarantees, it was designed with the knowledge that custom liquidation systems could be built on top of Morpho Markets to better serve borrowers' needs. This is where the pre-liquidation contract comes into play. It is a general factory for deploying individual contracts that contain custom liquidation parameters for any given Morpho Market.

Borrowers can opt into the new set of parameters by authorizing the contract to “switch on” the custom liquidation settings. If a pre-liquidation fails to execute properly—for instance, if no liquidators are monitoring the new contract—the borrower will be liquidated using Morpho's default liquidation mechanism.

The set of pre-liquidation parameters is composed of:

  • a Morpho market (id);

  • a pre-liquidation loan-to-value (preLltv);

  • two pre-liquidation close factor parameters (preLCF1 and preLCF2);

  • two pre-liquidation incentive factor parameters (preLIF1 and preLIF2);

  • a pre-liquidation oracle (preLiquidationOracle)

Including a pre-liquidation oracle as a parameter allows the use of solutions such as Chainlink Smart Value Recapture (SVR) for oracle extractable value (OEV) recapture.

The dual parameter option, which includes the close factor and incentive factor, enables the creation of dynamic factors that change between pre-LLTV and the market’s default LLTV.

How applications can integrate pre-liquidations

Having explained the contract’s mechanics, let's explore how applications and front-ends can use custom pre-liquidation contracts to offer borrowers different position management tools.

Taking Coinbase's crypto-backed loans as an example, Coinbase could set up a custom pre-liquidation contract and allow users to approve it through the Coinbase App.

Here are two examples of features that can be enabled with pre-liquidation contracts:

Auto Deleverage

Instead of closing the entire position when it becomes unhealthy, auto deleverage closes only enough of the position to restore its health. This approach aims to keep positions open as much as possible while reducing liquidation fees paid by borrowers.

To enable auto deleveraging, the pre-liquidation contract would need to specify the liquidation close factors where preLCF1 < preLCF2 ≤ 1, and preLIF is fixed.

For example, if preLCF1 is set to 0.1 and preLCF2 to 1, then when a position first becomes unhealthy (position LTV > pre-LLTV), at most 10% can be closed. As the position's LTV approaches the default LLTV, the closeable portion would gradually increase toward 100%, effectively implementing gradual liquidations.

Auto Close

The goal of an auto close is to close the position entirely while reducing the liquidation fee paid by the borrower.

One way to achieve this is to configure a pre-liquidation contract with a fixed preLIF value significantly lower than the default LIF, as seen below. It’s also possible to mimic a Dutch auction for liquidation by implementing a dynamic LIF where preLIF1 is less than preLIF2.

By authorizing auto-close, borrowers accept earlier liquidation in exchange for a reduced liquidation penalty.

Security

The code for Pre-Liquidations has been audited by Spearbit and ABDK, with the full reports available here.

Key specifications have also been formally verified using Certora and are accessible here.

The contract is included in Morpho's $1.5M bug bounty program on both Immunefi and Cantina.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[The Morpho Effect: January 2025]]> https://paragraph.com/@morpho/the-morpho-effect-january-2025 e7wg1iKsPFFZWX3MYDjq Wed, 05 Feb 2025 12:37:35 GMT A monthly digest of what's happening in the Morpho Ecosystem.

TLDR:

🔹 Coinbase crypto-backed loans are powered by Morpho

🔹 Morpho core contracts are deployed across multiple new chains

🔹 Bundler3 is now available as a public good

🔹 Highlights from the Morpho Ecosystem

Highlights of the Month

Coinbase introduced crypto-backed Loans powered by Morpho

This marks the first time a large-scale consumer application serving millions of users has directly integrated DeFi infrastructure to power its core financial services.

The integration is built on Morpho Markets. Specifically, it taps into the cbBTC/USDC market on Morpho.

Here is the announcement from Coinbase, and how easy it is to get an onchain loan via the Coinbase App:

Crypto-backed loans are progressively rolling out to Coinbase users. Currently, the integration has facilitated $2.5M in USDC loans with close to $5M in cbBTC collateral.

Morpho Everywhere

The first batch of Morpho core contracts has been deployed on Polygon POS, World Chain, Ink, Arbitrum, Scroll, Fraxtal, and OP Mainnet.

These deployments are infrastructure-only, meaning they won't initially be supported on the Morpho App or receive MORPHO rewards.

Independent contributors on these chains are encouraged to build on Morpho, following models similar to Moonwell on Base. Builders can operate under their own brands, pursue chain-specific grants, and apply for MORPHO grants to drive growth.

Introducing Bundler3

Morpho Labs introduced Bundler3 - an open-source contract that lets users batch any onchain actions in one click, with any wallet they may have (including EOAs).

Bundler3 is available as a public good.

Here is an introduction of Bundler3 and how it works:

Ecosystem Highlights

Morpho is a permissionless financial infrastructure - many teams are building their specific use cases on top of Morpho.

Here are a few to highlight from the past month:

  8. Resolv Labs, Stakestone, Kelp DAO and Level now have new Morpho Markets.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[Morpho Everywhere: Infrastructure Mode]]> https://paragraph.com/@morpho/morpho-everywhere-infrastructure-mode NF8H6vDuA1V5sIpLyxhh Wed, 29 Jan 2025 14:50:15 GMT Morpho enters infrastructure mode with the Morpho Stack—the full suite of Morpho smart contracts—now deployed across multiple new chains including Polygon POS, Arbitrum, Optimism, Scroll, Ink, World Chain, and Fraxtal. This first wave of deployments marks the beginning of Morpho's multichain strategy. Upcoming deployment batches will prioritize chains with confirmed interest from curators and builders.

Deployments under the multichain framework are infrastructure-only, meaning they won't initially be supported on the Morpho App or receive MORPHO rewards. However, with DAO approval, they could transition into core deployments in the future, gaining both front-end support and MORPHO rewards.

Independent contributors on these chains are encouraged to build on Morpho, following models similar to Moonwell, which has achieved over $200M TVL in their Morpho Vaults on Base. Builders have the ability to operate under their own brands and business models, pursue chain-specific grants, and apply for MORPHO grants to drive growth.

Morpho uniquely offers both builders and users the flexibility to tailor risk to their specific needs. While its permissionless design enables infinite customization of risk profiles, it also introduces the possibility of misconfigurations within either Morpho Markets or Morpho Vaults. Misconfigurations are not bugs or flaws in the smart contracts but rather inherent aspects of an open, permissionless risk curation model.

This multichain expansion reflects Morpho's mission to make financial infrastructure a public good. Builders on these chains can now utilize open infrastructure to develop innovative lending and borrowing use cases, unlocking new opportunities for users across these ecosystems.

Contracts and addresses

Each deployment of the Morpho Stack includes the following smart contracts:

  • Morpho

  • Morpho Vaults 1.1

  • Morpho Oracles

  • Morpho Universal Rewards Distributor

  • AdaptiveCurveIRM

  • Morpho Public Allocator

  • Bundler3

  • Pre-liquidations

The list of verified addresses for the first batch of deployments can be found here. Addresses of future deployments will be added to the docs as they are completed.

Industry Leading Security Practices

Morpho smart contracts have been audited by Spearbit and OpenZepplin with full reports available here.

Key properties of the deployed contracts have also been formally verified using Certora, which can be found here.

Additionally, all contracts deployed and owned by the Morpho DAO are included in a $2.5M bug bounty program on Immunefi and Cantina.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[Introducing Bundler3]]> https://paragraph.com/@morpho/introducing-bundler3 nnFXg74UHZ7CWuN0BwcW Thu, 23 Jan 2025 14:33:58 GMT Today, Morpho Labs has released Bundler3, an open-source smart contract that enables externally-owned accounts (EOAs) to execute a sequence of arbitrary calls atomically, including actions requiring approvals or callbacks.

Bundler3 can call protocols directly or through wrappers named "adapters” which are useful for performing atomic checks, manage slippage, and safely execute actions that require authorizations. This release includes a number of pre-built adapters, however, anyone can create and use custom adapters, further expanding Bundler3’s utility.

Bundler3 was originally developed to streamline user transaction flows, introduce new features, and strengthen security within Morpho’s products, particularly the Morpho App. However, in line with Morpho’s mission to make financial infrastructure a public good, Bundler3 is now available to the broader ecosystem, offering a practical solution for projects with similar use cases.

The Bundler3 code has been audited by Spearbit and OpenZeppelin, with the full reports available here. Key properties of the code have also been formally verified with Certora, which you can access here.

Bundler3: a more powerful Multicall

A major limitation of externally owned accounts (EOAs) is their inability to perform multiple contract calls simultaneously. This restriction results in a fragmented user experience and hinders the ability to simplify complex transaction flows into a seamless, “one-click” process.

While Multicalls allow multiple contract calls to be executed within a single transaction, they often fall short for many DeFi use cases. Critical requirements, such as atomic checks or granting approvals for a contract to act on behalf of an EOA, are not feasible with basic Multicall implementations.

The purpose of Bundler3 is to provide a more powerful multicall solution. It allows users to combine a sequence of smart contract calls atomically—ranging from simple to complex—into a single, efficient transaction, including those that require approvals or use callbacks. It achieves this by using transient storage to store an address as the "initiator" the first time it interacts with the bundlers. Additionally, a callback hash ensures that any reentry into the bundler contract uses predefined data, preventing actions not originally specified in the bundle.

The following chart illustrates how Bundler3 enables an EOA to perform multiple actions, including call back flows, in a single transaction:

The entry point for Bundler3 is the multicall(Call[] calldata bundle) function. Each call within the bundle is defined by the following parameters:

  • to: The address of the smart contract to call.

  • data: The calldata to pass to the contract.

  • value: The amount of native currency to send with the call.

  • skipRevert: A boolean indicating whether the multicall should continue or revert if this specific call fails.

  • callbackHash: A hash representing the expected argument for reentrance (0 if no reentrance is required).

These features enhance Bundler3’s flexibility and security, making it especially effective for advanced transaction flows and adapter-based integrations.

Adapters and their capabilities

Adapters are protocol wrappers designed to extend the functionality of Bundler3. They are particularly useful for:

  • Atomic checks, such as checking slippage.

  • Slippage management, for example, during migrations.

  • Executing actions requiring user authorizations.

To ensure secure user interactions, adapters can restrict specific function calls based on the initiator. For instance, an adapter requiring token approvals might only allow calls to token.transferFrom where the from parameter matches the initiator.

Since these functions often involve moving user funds, only Bundler3 is permitted to call adapters. If an adapter requires additional actions after being called back—such as during a flash loan—it can utilize other adapters by calling the Bundler's reenter(Call[] calldata bundle) function.

The following three adapters have been deployed, but integrators are free to create and use custom adapters in a Bundler3 transaction:

All three adapters — GeneralAdapter1, EthereumGeneralAdapter1, and ParaswapAdapter — inherit the code from CoreAdapter, which provides essential features like access to the current initiator address.

Integrating Bundler3

Bundler3 is an immutable, unowned, and open-source contract that has been deployed on Ethereum and Base. To start integrating, read the following doc.

Similarly to other contracts developed by Morpho Labs, the Bundler3 code base will be part of the existing bug $1.5M bounty program on Immunefi and Cantina.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[Morpho: Institutional Grade Lending Infrastructure]]> https://paragraph.com/@morpho/morpho-institutional-grade-lending-infrastructure znT0p87202mOdtIWuLOo Thu, 16 Jan 2025 16:01:48 GMT Today, Coinbase announced the launch of crypto-backed loans, a new onchain integration that allows customers to borrow USDC using their Bitcoin as collateral. We’re proud to see Coinbase integrate Morpho into their app and believe other fintech companies could greatly benefit from integrating with and offering DeFi services to their users.

However, not all DeFi protocols meet the stringent security and compliance requirements of consumer-facing fintechs and institutions.

DeFi has suffered multiple hacks totaling hundreds of millions of dollars. For regulated entities whose reputations are paramount, this level of risk is unacceptable.

Compliance is equally critical. Fintechs operate under strict regulations in their jurisdictions, and failure to meet these requirements can result in significant penalties—or, in extreme cases, forced closure.

This article explores how Morpho addresses these two key challenges, enabling secure and compliant DeFi integration for fintechs and institutions.

Morpho’s Architecture

First, let’s start with a prior on Morpho’s architecture.

Morpho comprises two main components: Morpho, the protocol, and Morpho Vaults.

Morpho Protocol

Morpho protocol is an open infrastructure for onchain loans—the most secure, efficient, and flexible lending platform in DeFi.

The protocol's core function is market creation and interest accounting. Anyone can create a market, and there's no limit to how many markets can exist. The protocol continuously tracks lenders' earnings and borrowers' debt across all those markets.

Each market is defined by three elements: a collateral asset, a loan asset, and a set of risk parameters. The protocol places no restrictions on the types of markets that can be created.

Think of Morpho as a lending primitive that aggregates liquidity and enables onchain loan origination. For example, a fintech can integrate a Morpho market allowing their users to borrow liquidity from it.

Morpho Vaults

While Morpho protocol focuses solely on accounting, risk management happens in a separate layer above it: Morpho Vaults.

Morpho Vaults are smart contracts that can allocate lenders’ liquidity to a set of Morpho markets. They abstract the complexity of managing its position for lenders, offering a completely passive experience.

Morpho Vaults are typically curated by risk managers. They dynamically allocate users’ funds to Morpho markets depending on market conditions. Different vaults can cater to different risk profiles.

Integrators such as DeFi protocols or Fintechs would then deposit their liquidity directly into the vault to earn yield. A typical setup could be a fintech owning a vault and paying the service of a risk manager to curate the vault and optimize risk/return.

With this overview of Morpho's architecture complete, let's explore how Morpho addresses fintechs' major challenges.

Compliance

Tailored Markets

A restriction a fintech may face when offering DeFi-powered lending or borrowing products is that users must have a KYC. This can be a problematic situation, especially in a pseudo-anonymous space.

Fortunately, Morpho's flexibility allows for creating permissioned markets.

For example, if a fintech wants to create a gated USDC borrowing product and restrict only borrowers, they can create a market using a KYC-wrapped token as collateral and USDC as the loan asset. This ensures that only KYC-verified users can borrow from the market while still accessing the vast USDC liquidity available onchain.

A prime example of this approach is a Morpho market created by Centrifuge (RWA provider) with a KYC-gated RWA as collateral and USDC as loan asset.

Non Custodial

Custody is another crucial consideration. Custodial products—where financial institutions hold assets on behalf of customers—face much stricter regulations than noncustodial ones. This custodial arrangement creates additional legal and operational responsibilities for the institution.

Morpho enables fully noncustodial products, significantly reducing legal and operational burdens.

Both the Morpho protocol and Morpho Vaults are noncustodial by design. Users maintain complete control over their positions and can exit at any time. This is ensured through immutable code and a robust system of roles and timelocks that safeguard users against potential risk curator misconduct.

For instance, the recent Coinbase crypto-backed loan integration built on Morpho is fully noncustodial. Users can access fully permissionless markets, with global liquidity from Morpho’s network and enjoy the most competitive rates available onchain.

Full Ownership

Fintech companies typically use TradFi infrastructure to power their products. Hence, they’re trapped in using inefficient, proprietary, and closed solutions that are slow to evolve and come at a high cost, diminishing user experience and profit margin.

DeFi protocols that are fully open source, immutable and publicly owned, such as Morpho, streamline all redundant operations and reduce cost while offering total control over the integration.

Fintechs retain full ownership of the stack they’re integrating, avoiding profit cuts and providing maximum flexibility to build the best products for their users, tapping into the infra’s network effect while staying compliant.

Security

Security Framework

In 2024 alone, $2.2B was stolen from crypto platforms. Despite fintechs' growing interest in DeFi, this alarming statistic significantly can dampen their willingness to take the risk.

To address this concern, Morpho has made security its top priority in the DeFi space.

Morpho follows a strict Security Framework that spans from ideation through post-deployment. Security isn't just an afterthought—it's fundamental to Morpho's design philosophy from inception.

During development, Morpho undergoes rigorous testing, including formal verification that matches the highest standards for verifying aerospace and transportation software”. A dedicated team oversees this entire process.

Leading security firms like Spearbit and Open Zeppelin have thoroughly audited Morpho, making it one of the most secure lending protocols in the space.

After deployment, we maintain constant protocol monitoring and offer a $2.5M bug bounty—exceeding Apple's bounty program—to incentivize white hat hackers to identify potential vulnerabilities.

Immutability

Many DeFi hacks have occurred due to protocol upgrades. Even a tiny code change can compromise a smart contract and nullify all previous security measures.

Morpho is fully immutable and governance-minimized. This provides two key benefits for integrators: (1) the protocol will remain unchanged forever, and (2) the Lindy effect can only strengthen over time, as I explained in this opinion piece.

(1) The first benefit is crucial for integrations. Take the recent Aave v3.2 upgrade—it broke several integrated products. Aave had to roll back their changes to restore functionality. Such issues are impossible with Morpho, as integrators can trust that the protocol will function precisely as it does today, forever.

Also, Morpho operates completely independently of Morpho’s governance system. Hence, governance attacks like the one that affected Compound are impossible on Morpho.

Fintechs building on Morpho can be confident that their markets will remain unchanged, as they are protected from both governance attacks and market alterations through full immutability.

(2) The Lindy Effect states that the longer a non-perishable entity—whether an idea, technology, or cultural phenomenon—survives, the longer it's likely to endure. As immutable DeFi protocols are non-perishable, the Lindy Effect applies perfectly. Each day a protocol operates without a major exploit increases its likelihood of remaining secure in the future.

Integrating Morpho

The Coinbase integration proves Morpho’s potential for powering exceptional consumer products.

Morpho, by offering an open infrastructure for onchain loans, will become the go-to platform for fintechs willing to offer best-in-class lending products for their users that will benefit from fintech UX and DeFi’s efficiency.

The playbook is simple and has already been written.

If you’re considering building a loan product on top of open financial infrastructures, please reach out!

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[Coinbase Launches Crypto-Backed Loans, Powered by Morpho]]> https://paragraph.com/@morpho/coinbase-launches-crypto-backed-loans-powered-by-morpho mkkpXkAmemgoaw05Y9vy Thu, 16 Jan 2025 14:41:15 GMT Today, Coinbase announced the launch of crypto-backed loans, powered by Morpho, enabling millions of users to get a USDC loan directly through Coinbase’s main app. This novel, fully onchain product combines Morpho’s highly efficient and open infrastructure with Coinbase's expertise in making crypto accessible to people worldwide.

Gradually rolling out on the Coinbase app, customers now have a simple and secure way to borrow USDC against their BTC held on Coinbase, with plans to support more collateral assets in the future. The process is seamless: users can view supported assets, review borrowing terms, and manage their loans—all within a single, intuitive interface. In just a few clicks, USDC arrives instantly into their Coinbase account, with flexible, open-ended repayment terms.

With loans powered by Morpho on Base, Coinbase customers have access to the most competitive rates and loan-to-value ratios available onchain—directly through the Coinbase app. This provides users with all the benefits of Morpho, but enhanced by Coinbase’s seamless user experience.

To get started with crypto-backed loans on Coinbase visit coinbase.com/loans, or try Morpho directly at app.morpho.org.

Bringing Institutions Onchain

Morpho enables companies like Coinbase to offer access to borrowing and lending services while maintaining complete control over the experience. Everything can run effortlessly on top of Morpho's highly secure, immutable, and open infrastructure, without needing to relinquish control to any third-party.

Think of Morpho as the internet protocol for lending and borrowing. Similar to how Airbnb, Amazon and Netflix leveraged internet protocols to offer specific experiences to their users, Coinbase and other companies can use Morpho to create customized lending and borrowing experience, tailored to their customers’ needs.

The Coinbase integration represents a major leap forward for onchain finance but also Morpho as it becomes the infrastructure of choice for other exchanges, fintechs, and banks moving onchain. Expect more institutions to follow Coinbase’s lead and build on Morpho.

Visit morpho.org to learn more.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[Introducing Morpho Vaults 1.1]]> https://paragraph.com/@morpho/introducing-morpho-vaults-1-1 fklS0x0zz32eZRvfn8Nf Tue, 07 Jan 2025 15:02:25 GMT Introducing Morpho Vaults 1.1

Today, we’re announcing Morpho Vaults 1.1, an improvement to the widely adopted Morpho Vaults 1.0 that has become a staple of the DeFi ecosystem. This latest version retains the same core functionality of Morpho Vaults 1.0 while removing automated bad debt realization at the vault level, enabling greater adaptability for a broader range of integrations and use cases. In addition, Morpho Vaults 1.1 introduces several quality-of-life improvements for Morpho curators.

Following security audits from Spearbit and OpenZepplin, the Morpho Vaults 1.1 factory has been deployed on Ethereum and Base. This latest version will also be used for Morpho’s cross-chain vision, where the Morpho Stack will be deployed on over 20 new chains, bringing Morpho’s permissionless infrastructure to several new ecosystems.

Morpho Vaults 1.1 is an independent codebase separate from Morpho Markets or Morpho Vaults 1.0, which remains immutable and unchanged. The new 1.1 vaults are designed to seamlessly connect to the existing Morpho network, coexisting alongside Morpho Vaults 1.0 and sharing liquidity to the extent they allocate to the same markets.

Removing Automated Bad Debt Realization

Morpho Vaults have become a key component of the DeFi ecosystem, with growing demand to integrate them across many protocols and diverse use cases. While the automated bad debt realization mechanism in Morpho Vaults 1.0 safeguards against bad debt accumulation, it limits compatibility with emerging use cases.

With Morpho Vaults 1.1, automated bad debt realization is removed, unlocking:

  • Broader integrations: The update enables Morpho Vaults 1.1 to be utilized more widely in the growing number of B2B integrations.

  • Insurance and reserve innovation: The change opens a new design space for reserve-type products built specifically for Morpho Vaults. For example, curators could redirect a portion of interest generated by the vault into a reserve fund or implement custom safety modules similar to Umbrella to cover potential bad debt.

Improving the Curator Experience

Morpho Vaults 1.1 comes with quality-of-life enhancements designed to enhance the experience for Morpho curators:

  • Curators can update vault names.

  • Curators can update vault symbols.

  • Timelock can be set to 0 at deployment to streamline the initial setup process.

Note that once a vault timelock is increased from 0, the minimum timelock becomes 24 hours to preserve Morpho Vaults' noncustodial properties.

Seamless and Secure Integration into the Morpho Stack

The Morpho Stack was designed with a layered architecture to enable continuous improvements without compromising the security of the core protocol or fragmenting liquidity.

With the deployment of Morpho Vaults 1.1, the integrity of other Morpho codebase remains intact. Both Morpho Markets and Morpho Vaults 1.0 are unchanged and fully immutable. Morpho Vaults 1.1 is a separate contract that integrates into the existing network, ensuring zero risk of introducing bugs to existing smart contracts.

As aggregators of Morpho Markets, Morpho Vaults naturally prevent liquidity fragmentation. Both 1.0 and 1.1 versions of Morpho Vaults will coexist, sharing liquidity wherever they allocate to the same underlying markets.

The codebase for Morpho Vaults 1.0 can be found here, along with two audits conducted by Spearbit and Cantina, accessible here.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[The Morpho DAO to Enable Transferability for MORPHO]]> https://paragraph.com/@morpho/the-morpho-dao-to-enable-transferability-for-morpho l0yVVDPfWCzUVXMxAIBn Mon, 18 Nov 2024 10:11:20 GMT The Morpho DAO (”DAO”) has voted to enable the transferability of the MORPHO token, advancing Morpho’s mission to make financial infrastructure a public good. Since launching in June 2022, the DAO has progressively distributed ownership to the protocol’s users, strategic partners, risk curators, and other contributors aligned with Morpho's long-term vision. Now, by enabling token transferability, the Morpho DAO allows anyone to own and govern the Morpho network.

As discussed by the community, this move is a key step toward realizing Morpho’s mission by empowering a broader range of participants to engage with and contribute to the Morpho ecosystem. It will bring new perspectives and ensure that DAO decisions reflect the interests of a more diverse community.

The Morpho DAO is expected to enable transferability on Thursday, 21 November 2024.

Community-Driven Approach

The Morpho DAO took a unique approach with the MORPHO token, addressing common criticisms of token launches often controlled by a small group or centralized entity. By initially deploying MORPHO as a non-transferable token, the DAO allowed itself—not any centralized entity or individual—to decide when to enable transferability, ensuring a decentralized and community-driven process.

During the non-transferability phase, the DAO prioritized distributing ownership across three key pillars: users, contributors, and strategic partners. Users gained network ownership and helped shape its evolution; contributors enhanced the technology, network, and accessibility based on user feedback; and strategic partners offered capital and guidance.

Now, with a robust ecosystem of contributors, tens of thousands of users, and a network poised to become a cornerstone of decentralized finance, the DAO voted to take the next step—making the MORPHO token transferable to further its mission of transforming financial infrastructure into a public good.

The MORPHO token

MORPHO is the Morpho Protocol's governance token. The Morpho DAO — made up of MORPHO holders and delegators — governs the Morpho Protocol. The governance system uses a weighted voting system in which the number of MORPHO tokens held determines voting power.

MORPHO holders can vote on changes or improvements to the protocol, including:

  • Future initiatives to grow the Morpho protocol;

  • Deployment and ownership of Morpho smart contracts;

  • Turning on/off the fee switch built into the Morpho smart contracts;

  • Govern the DAO Treasury.

Legacy and Wrapped MORPHO

The original, now legacy, MORPHO token was deployed as an immutable contract and lacked functionality associated with onchain vote accounting. The Morpho DAO voted to create a contract to wrap the legacy tokens into wrapped MORPHO to enable onchain vote tracking functionality in MIP-75.

In addition to onchain vote tracking, using an upgradeable token makes it possible to conform to a crosschain interoperability standard in the future, minimizing friction for MORPHO holders who want to move their tokens between chains.

Although legacy MORPHO tokens can be freely converted to wrapped MORPHO 1:1 via the wrapper contract, there could be a risk that legacy tokens might be used mistakenly in external integrations, such as exchanges. To prevent this, only the wrapped MORPHO will be transferable. Users will be able to wrap existing legacy MORPHO tokens on the Morpho App once transferability is enabled.

MORPHO Token Addresses

Wrapped MORPHO

Ethereum address: 0x58D97B57BB95320F9a05dC918Aef65434969c2B2

Base address: 0xBAa5CC21fd487B8Fcc2F632f3F4E8D37262a0842

Legacy MORPHO

Legacy MORPHO: 0x9994E35Db50125E0DF82e4c2dde62496CE330999

Wrapper Contract

Address: 0x9D03bb2092270648d7480049d0E58d2FcF0E5123 (only on Ethereum)

For additional details on the MORPHO token, including total and circulating supply, distribution breakdown, and vesting, refer to the docs.

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[The Problems of Decentralized Governance]]> https://paragraph.com/@morpho/the-problems-of-decentralized-governance CJRFoNupQGWUUgSb0kxm Thu, 10 Oct 2024 14:48:00 GMT The views presented in this article reflect my personal opinions and research, and do not represent the official stance of the Morpho Association or any other organization. They are presented here for public feedback and for informational purposes.

This is the first in a series of articles on decentralized governance, whose goal is to provide background on the problem space and ideas that the Morpho DAO can consider in its own model. I will first consider the challenges faced by governance, synthesizing the literature on this topic. The next article will examine specific implementations, their history, and their success (or lack thereof) in solving the problems described below. Finally, I will apply the ideas of the previous articles in the context of the Morpho Protocol.

There are a few key problems that any system of governance must address:

The principal-agent problem, where the interests of a representative and their constituents are misaligned, is one of the most familiar and fundamental challenges in governance.

The participation incentive problem, where voters have low individual incentive to participate, allowing capture by minorities or preventing quorums from being reached. Low voter turnout and high complexity of governance are problems in both the onchain and offchain worlds.

The succession problem, or the difficulty in ensuring that new generations have the power and skill to effectively govern an organization, including the willingness to continue innovating. Many organizations fail to ensure a robust succession and become “dead players” after the founding generation departs.

The economic capture problem, where there exists an incentive to expend resources to capture the system and extract the value it controls. In onchain systems, the governance system may control assets with greater market value than the circulating supply of tokens, which may be stolen or misappropriated if governance is captured.

In addressing these problems, the reader should keep in mind that “no mechanism exists to guarantee virtuous action”. All great organizations are created by great founders, new generations of strong leaders are required for continued growth, the specific set of individuals and entities in the organization at any given time matters, and no perfect mechanism can replace bad leadership.

This doesn’t mean, of course, that mechanisms of governance are irrelevant. It means that they must be considered taking into account the changing needs of an organization as it evolves. At first, flexibility is paramount and founder control is natural. Later, checks and balances must be introduced, and procedures instituted to help maintain cohesive function in the event of succession.

Let’s address the four problems of governance described above with this perspective in mind.

The principal-agent problem

The principal-agent problem refers to the fundamental conflict of interests between the owners of a company or citizens of a country, and those of the management (in the case of a company) or elected representatives and bureaucrats (in the case of a country). There are often opportunities for representatives to enrich themselves or their allies at the expense of constituents, such as offering preferred negotiating terms to their allies, nepotism in hiring, or even directly stealing from the organization’s assets.

In an onchain context, the principal-agent problem can manifest in familiar ways:

  • Founders using their reputation to get access to desirable investment opportunities outside of their core project

  • Delegates with conflicts of interest pushing for the selection of certain service providers or technology platforms

  • Protocol developers operating a frontend which takes fees from users, separate from the fee switch on the token

  • Risk managers making decisions based on social or political influences instead of objective calculations

Ways to address the principal-agent problem:

  • Ensure that a robust delegate set exists representing a variety of stakeholder types

  • Founders and early investors can delegate their tokens to independent parties, and even enforce that the delegation lasts for a certain duration at a contract level to maximize delegate autonomy

  • Ensure that all stakeholders are aligned on a central nexus (ie, no valuable equity separate from a token)

  • Harden the protocol by minimizing the scope of changes that can be made

  • Add independent oversight of processes (for example, outside financial audits of foundations or labs entities, independent risk ratings)

  • Add redundancy, for example, multiple independent organizations contributing to technical development, such as the multiple client teams on Ethereum, or multiple frontend providers in the case of a DeFi platform

A subset of the principal-agent problem is the “accountability problem”, the question of how poorly performing agents can be detected and disciplined or replaced. As discussed below in the “economic capture problem” section, there is no automated mechanism that can reliably detect and respond to the performance of core contributors or delegates. The core solution to this is independent oversight, including a delegate community that has independence from the project’s core leadership, outside financial auditors, and also a healthy media ecosystem that has incentives to surface bad behavior publicly.

The participation incentive problem

Participation in any governance program has costs. Even if gas costs for voting are subsidized or eliminated through a gasless voting scheme, informed governance decisions require a significant attention cost. While Hall and Oak discuss the possibility of incentivizing participation (see footnote 1), representative democracy is the natural equilibrium onchain, just as it is in politics and corporate governance. Except in extreme cases like Optimism, where more than $30m in airdropped OP has been allocated to active DAO voters, DAOs tend to have a small number of voters. Whether it’s Aave, Uniswap, or Lido, it’s rare for any onchain vote to have more than forty direct participants.

Even for a representative system, delegates need some incentive to participate. Either they can be compensated for their efforts and somehow held accountable for outcomes, or they might be entities with a pre-existing incentive to participate who wish to magnify their voice by receiving delegations from others. This topic will be explored at length in my next article, looking at data from several major decentralized finance protocols. My current view is that a healthy delegate set must include a variety of stakeholder types, not exclusively compensated professional delegates. Delegate compensation is sensible, ideally scaled based on a delegate’s voting power.

Decisions that are outside delegates’ scope of expertise can be deferred to service providers or foundation employees, and all governance systems should strive to minimize the number of onchain votes, as well as adopting standards such as a fixed interval between voting periods to reduce overhead for delegates.

The succession problem

Early in an organization’s life, the founders are not mere “agents” representing “principals”, but rather creative directors (and dictators) bringing something new into the world. Too many cooks spoil the broth. In the case of a company, good early stage investors know that the main reason to provide capital into an early stage project is because one trusts in the vision and ability of the founders.

Over time, the founding group is replaced by successors, who may have a smaller direct stake in the organization’s success (smaller ownership percentage). This creates an increased need for checks and accountability to ensure that they do not abuse their power, since there is a bigger gap between their personal interests and those of the stakeholders they serve.

For decentralized and centralized systems alike, among the most critical moments in their lifespan is the handoff of influence from the original founding group. One can observe that many such handoffs in DeFi have been premature, perhaps due to regulatory concerns leading founders to prioritize decentralization over performance. For example, Compound Finance has struggled with voter apathy and failed to compete with Aave and MakerDAO for borrowers in large part because the founders have departed to pursue new ventures. Even in the case of dominant projects like Bitcoin, the lack of a proper successor to Satoshi has prevented the development of useful new features, even those specifically mentioned as desirable by Satoshi, such as onchain privacy.

There’s no simple solution to ensuring that a system remains dynamic and can continue to grow or at least preserve itself after the founding generation departs. The best answer I can give is that founders should strike a balance between establishing credible neutrality and providing a clear vision and direction. Ethereum is a good example of this. Vitalik, the original visionary, remains deeply involved, but the Ethereum foundation has also succeeded in empowering client teams, L2s, and app developers to give input to protocol direction. For example, the Uniswap team was the driving force between EIP-1153, which enabled core features of Uniswap v4. Decentralization does not need to imply that the early leaders have departed, only that new leaders can freely emerge in an open system, with the network’s value driven by the efforts of many independent efforts and use-cases.

The economic capture problem

It’s common for token governance to have powers such as control over assets worth greater than the protocol market capitalization, or treasury tokens in a quantity greater than the circulating supply. The latter is the reason given by the Optimism Foundation to reject the idea of giving OP holders control over OP treasury distributions. This problem has been a topic of concern among the crypto community for years. In 2021, Vitalik wrote that “all current instantiations of decentralized governance come with great risks… [t]here are two primary types of issues with coin voting that I worry about: (i) inequalities and incentive misalignments even in the absence of attackers, and (ii) outright attacks through various forms of (often obfuscated) vote buying. To the former, there have already been many proposed mitigations (eg. delegation), and there will be more. But the latter is a much more dangerous elephant in the room to which I see no solution within the current coin voting paradigm.”

In my view, there are two major kinds of solutions to this problem:

  1. DAO guardian // security council, which consists of giving an elected or appointed council the ability to veto potentially harmful proposals, and/or take other kinds of emergency actions. Such a council might initially consist of core contributors, and later be altered to include elected representatives. Examples of this approach include Compound Finance (the Guardian always had security roles, and was recently extended the ability to veto proposals after a governance attack) and Arbitrum. While not yet working in practice, is Optimism’s bicameral governance, where certain ecosystem actors are given nontransferable voting rights, is also in this category, and should be seen as a broader version of a guardian council.

  2. Rate limits and hard caps, for example the Arbitrum DAO can mint new ARB tokens, but at a maximum rate of 2% inflation per year. In theory this limits the ability of insiders to conduct wasteful spending, although in practice the DAO still holds a very large amount of pre-minted ARB tokens and has made some dubious allocations. For another example, the Morpho DAO can activate fees on its lending pools, but there is a hard cap on fees of 25% of the interest paid by borrowers. When compared to the 10-20% average fees on competing lending markets, this ensures that lenders will never face an unreasonable level of extraction.

Vitalik addresses both of these, though I believe gives insufficient attention to the value of a veto-only guardian system in decentralized governance. He brings up a few other classes of solutions, including “Proof of Personhood”, quadratic voting, and skin in the game for voters. I reject the first two, since there is yet no theoretical basis for a non-gameable proof of personhood or quadratic voting system without a centralized identity system.

“Skin in the game for voters” is more interesting, and was one of my central themes in the design of the Credit Guild. This is useful for certain specific classes of decisions, like setting parameters in a lending market or allocating token incentives to a liquidity pool, where outcomes can be easily measured on a definite timespan, but cannot be generalized to couple the outcomes of all governance decisions to the returns of individual voters. One other notable class of systems is vote escrowed tokens, made famous by Curve Finance. Requiring voters to lock up capital does not solve the economic capture problem if the value at risk exceeds the value of the locked tokens. The Curve implementation has also struggled with a lack of skin in the game, where voters are not rewarded more for wise resource allocation, and thus have an incentive to extract the maximum “bribe” revenue that they can. More generally, it is my view that vote-lock systems impose an undue burden on minority voters. Someone who buys into the system cannot vote unless they lock their tokens, and are then stuck with the decisions of the majority, unable to exit.

Conclusion

A robust decentralized governance system should have a strong delegate set. It is highly advisable to have a veto council in order to mitigate economic capture. Governance minimization should be pursued to the extent possible. Founders should balance providing clear vision and direction with a strong commitment to neutrality. This can be done by empowering other voices in the community, including delegates and independent service providers, to provide checks and balances.

Your thoughts are greatly appreciated, both on this article and the upcoming pieces in the series. The next article, coming soon, will examine major governance implementations, weigh their pros and cons, and consider the history of certain (in)famous proposals. Follow on Mirror and on X to stay updated.

Footnotes

  1. This problem space is explored in detail in Andrew Hall and Eliza Oak’s paper, What Kinds of Incentives Encourage Participation in Democracy?

  2. Samo Burja defines this concept in The Succession Problem

  3. Miles Jennings, Machiavelli for DAOs: principles for fixing decentralized governance (part 1)

  4. Jeff Amico introduces ideas about delegation neutrality, albeit in the context of VC rather than founder tokens, in Open Sourcing Our Token Delegate Program

  5. See, for example, the relay programs on Tally

  6. Vitalik Buterin, Moving Beyond Coin Voting Governance

]]> morpho@newsletter.paragraph.com (Morpho) <![CDATA[cbBTC Lending Markets Deployed on Morpho]]> https://paragraph.com/@morpho/cbbtc-lending-markets-deployed-on-morpho yEZEaHJH3FXIqt4yBePg Thu, 12 Sep 2024 12:55:53 GMT Starting today, Morpho users can borrow against cbBTC as collateral. Day one support for cbBTC (Coinbase Wrapped BTC) is possible because of Morpho’s permissionless architecture that allows anyone to safely deploy isolated markets for new assets.

cbBTC is an ERC20 token that is backed 1:1 by Bitcoin (BTC) held by Coinbase. At launch, cbBTC will be supported on Base and Ethereum, with plans to support more chains. With cbBTC, Coinbase intends to increase economic freedom by giving users more ways to use their Bitcoin.

With the integration of cbBTC into Morpho, users can now borrow against their cbBTC, unlocking additional utility across the DeFi ecosystem.

Permissionless Market Creation

Day one support for cbBTC is possible because Morpho’s permissionless nature allows anyone to create markets with any asset, without a cumbersome, centralized listing process. This enables risk experts like Steakhouse Financial, Block Analitica, and Gauntlet to quickly deploy markets for new assets like cbBTC. For asset issuers, such as Coinbase in the case of cbBTC, this means that newly-launched assets can quickly be accepted as collateral, unlocking additional utility from day one.

How Isolated Markets Reduce Risk

Another key feature of Morpho is its isolated lending markets. These markets serve as simple yet flexible building blocks that enable the lending or borrowing of one asset against one collateral asset—such as lending or borrowing USDC against cbBTC. Isolated markets reduce risk by confining potential losses to a single market, ensuring that users of other markets remain unaffected. If losses occur, they are immediately shared among all suppliers within that specific market and continue operating as normal. This design allows the safe creation of lending markets for any asset, without requiring any risk to be shared amongst all users automatically.

Benefits of Using cbBTC on Morpho

  • Higher Collateralization: Morpho’s isolated markets mean liquidation parameters can be set higher, maximizing the borrowing power of cbBTC collateral.

  • Per-Market Rates: Morpho’s market-specific rates ensure optimal terms for users borrowing against cbBTC.

  • Low Costs: Morpho’s higher utilization and lack of protocol fees translates to more cost-efficient borrowing.

Looking Ahead

Morpho’s ability to support cbBTC at launch illustrates the advantages of its design. Unlike lending platforms with restricted asset listings, Morpho can accommodate new assets and use cases as they arise. This flexible, open architecture makes it well-suited to serve as the foundation for DeFi and continues to build upon Morpho’s mission of making financial infrastructure a public good.

]]> morpho@newsletter.paragraph.com (Morpho)