Morph Protocol was established in 2021 and is a company based in France under the name Morph Lab. It has raised a total of $70 million in funding from Ribbit Capital, a16z Crypto, Coinbase Ventures, Variant, Brevan Howard, Pantera, Blocktower, and more than 100 others to support its mission of making financial infrastructure a public good. The CEO and founder of Morph is Paul Frambot, while the co-founder is Merlin Egalite.
Morpho protocol mechanism
To borrow assets, the user must provide collateral in the form of a cryptocurrency asset backed by the Morpho protocol.
The protocol defines the minimum required collateral value for borrowed assets. For example, if this ratio is 90%, the value of borrowed assets must not exceed 90% of the collateral value, or the position will be eligible for liquidation.
The user initiates the borrowing process by interacting with the Morpho protocol. They specify the amount of assets they wish to borrow and provide the required collateral.
Borrowers pay interest on the borrowed amount. The amount of interest paid depends on the interest rate model used by the protocol. Interest accumulates over time and must be paid when the borrower repays the loan.
Borrowers can repay the loan at any time by returning the borrowed assets along with the accrued interest. Once the blockchain confirms the repayment of the debt, the borrower can retrieve their collateral from the smart contract.
Protocols include a mechanism to mitigate default risk. Suppose the value of the borrowed assets exceeds the predetermined loan value (due to market fluctuations or accumulated interest). The position may be partially or fully liquidated to repay the loan and any accrued interest.
The user initiates the lending process by interacting with the protocol. They specify the amount of the asset they wish to lend and convert these assets into the smart contract.
Lenders can withdraw their loan assets along with accrued interest if there is a market with sufficient liquidity.
Features of the Morpho protocol
The Morpho protocol gives users full control over their funds and the creation of markets. Users can select loan assets and collateral, and risk parameters without intervention from Morpho governance (DAO). Even governance cannot manage or manipulate user funds, ensuring decentralization and independence in participating in the market.
Morpho uses a pricing model that is not reliant on securities, meaning it can query price data from various internal or external trading markets. This approach ensures accurate pricing information for assets within its lending protocol.
Morpho Blue and Morpho optimizers. Morpho Blue facilitates the creation of efficient lending markets, while Morpho optimizers improve lending and borrowing rates through a peer-to-peer matching algorithm.
Morpho Singleton has a free flash loan feature, which can be taken without any collateral. Users can use these loans to take advantage of arbitrage opportunities, provide liquidity, or other financial strategies.
Morpho is a non-upgradable protocol, thus its contract is immutable, and the code cannot be changed.
Morpho Optimizer
Morpho Optimizer is a peer-to-peer (P2P) layer within the Morpho protocol that allows lenders and borrowers to match directly with each other. This approach enables them to achieve better interest rates while maintaining the liquidity and risk standards of the underlying protocols, such as Compound or Aave. The user experience with Morpho Optimizer is similar to that of CompoundV2 and AaveV3. The main difference is that Morpho provides improved rates for both borrowers and lenders. Morpho Optimizer offers users potential rates: a base rate from the lending pool (for example, Compound or Aave) in the worst-case scenario, and a higher P2P APY when matched with another user. In both cases, the rate is always equal to or better than what users would receive from the underlying protocol. In short, Morpho Optimizer acts as an enhanced gateway for decentralized lending, boosting yields without altering familiar borrowing and lending processes.
Morpho matching mechanism
Morpho Vault
Morpho Vault, previously known as MetaMorpho, is built on top of the Morpho protocol to protect user funds. The vault is non-custodial and immutable, allowing users to provide liquidity and earn interest. Each vault has permission to manage risks automatically so that users are not required to make these decisions while granting users full control over their assets. Users can check the status of the vault at any time and withdraw their liquidity at their discretion. Since the vault is non-custodial, lending on the Morpho protocol is more complex than any other protocol. On Morpho, liquidity providers must consider multiple factors, including collateral assets, LTV liquidation, oracles, and caps. While in other protocols, these factors are determined by governance. There are no restrictions on creating a vault. Each vault operates with four main roles: the owner, who oversees it; the coordinator, responsible for managing markets; the allocator, responsible for distributing assets; and the custodian, who ensures the vault's integrity and security. This decentralized setup gives users flexibility while simplifying the lending processes for participants.