Morpho Protocol Review: The Largest Lending Protocol Fundraise Ever

August 20, 2024 - Around 8 mins mins to read

Morpho Protocol is the most innovative lending protocol in the market, having secured more than $69.35 million in funding from such category-leading investment funds as A16z, Pantera, and Coinbase.

Morpho Protocol Review: The Largest Lending Protocol Fundraise Ever

Table Of Contents

What is Morpho Protocol?
How Morpho Protocol Works
Products
Tokenomics
Team, Investors and Partner
Roadmap
Conclusion
FAQs

What is Morpho Protocol?

Morpho Protocol is an Ethereum-based lending and borrowing platform with various innovative products and models that originated after Aave and Compound.

Morpho Protocol is conquering the middle of the cryptocurrency market with complementary new products against Aave and Compound’s dominance.

Project Highlights:

Combining three products, Morpho Optimizer, Morpho Blue, and MetaMorpho, achieves a highly optimized and flexible lending market.
Second, raising over $69.35 million for a lending project is not some joke with heavyweights at its back, such as A16z, Coinbase, Pantera, and Variant.
Already live since over two years ago, Morpho has reached $1.5 billion in TVL—firmly cementing it as the 4th largest lending protocol on Ethereum alone. Notably, its newly launched product, Morpho Blue, went live in mid-January 2024 and has already originated over $1.1 billion in loans.

How Morpho Protocol Works

Morpho Protocol acts as an abstraction layer between users and a lending pool. For example, when one lends some funds to Morpho, the protocol allocates those assets to lending pools and gives them interest-bearing tokens, ibToken. These tokens represent the proportion of the deposited assets belonging to the user and automatically increase over time.

When somebody wants to borrow from Morpho Protocol, it lends through ibToken. Thus, the lender and the borrower would be ensured a 100% utilization rate for better interest rates.

Products

Morpho Optimizer

Morpho Optimizer will be the first product Morpho Protocol offers. It will change the lending market by integrating both Peer-to-Peer and Peer-to-Peer models.

Peer-to-Pool: A model where assets are stored in a pool, and users interact with this pool. This has limitations like underutilized liquidity and significantly large lending versus borrowing interest rates—examples: Aave, Compound, Silo.

Peer-to-Peer: This is a peer-to-peer model where the lender and borrower interact. The primary challenge would be finding matching liquidity. Examples include ETH Lend and Term Finance.

Morpho Optimizer will merge both models by creating a peer-to-peer lending layer on top of Aave and Compound protocols, leveraging their liquidity. When the product is used, a user’s peer-to-peer lending and borrowing orders will be given priority. If there is no full or partial match in the order book, the residual liquidity will be transferred to Aave or Compound. If suitable, Morpho will withdraw liquidity from these protocols to match new orders on Morpho Optimizer.

Ideally, this model would match the borrowers and lenders to enable peer-to-peer transactions at the best possible interest rate. The unmatched liquidity would then be routed to Aave or Compound for normal execution.

However, this method has some glaring drawbacks: high fees from the multiple actions involved and dependence on the underlying liquidity layers such as Aave and Compound. Moreover, the Morpho Optimizer itself would hardly scale across other chains.

Morpho Blue

Morpho Blue launched in early 2024 to create flexibility for the Lending market. Built from 600 lines of code, it was initially developed on Ethereum and is expected to support Layer 2 Base and many other EVM chains.

To date, it is the most open and flexible lending market version. It empowers anyone to create a lending Pool and customize arbitrary parameters like Collateral, loan assets, Collateral ratio, and Oracle.

Morpho Blue example of use case:

He has a massive amount of sUSDe at his disposal; Party A can create a lending pool for sUSDe, collateralizing DAI, and then A deposits his sUSDe into the Pool for others to mortgage DAI to borrow sUSDe from the Pool or lend sUSDe. Friend B has many stETH and opens a stETH lending pool with USDT and USDC as collateral. Then, friend B deposits his stETH into the pool for lending so that users can also mortgage USDT or USDC to borrow stETH or lend stETH.

It allows the creation of lending pools with changeable, configurable parameters—that suit diverse tastes. This empowers projects to execute strategies that will serve their goals. In one example, Spark built a 300 million DAI lending pool (a subsidiary of MakerDAO), which used USDe and sUSDe as collateral to increase accessibility to DAI for holders of Ethena’s stablecoin.

However, Morpho Blue adds complexity to the user and fragments liquidity because it creates many small retail markets with particular needs. The following product, MetaMorpho, described below, will solve this problem.

MetaMorpho

It is designed to overcome Morpho Blue’s shortcomings by creating Vaults with loans and multiple collateral assets managed by risk analysts—such Vaults function according to the ordinary logic of Morpho Blue’s Lending Pools.

On the end-user side, MetaMorpho simplifies operations and dynamically allocates liquidity to the most appropriate pools according to the guidelines provided by risk analysis managers. All three products are running well and are managed by the Morpho association.

Shortly, with the project completely decentralized, the DAO will manage all activities of the Morpho Protocol directly. Morpho Optimizer will work in a stand-alone manner without expansion, and Morpho Blue, with MetaMorpho, will work on development and multiply-chain expansion.

Tokenomics

Token Metrics

Ticker: MORPHO
Total supply: 1.000.000.000

Token Allocation

Early Contributors: 4.8%
Users: 4.2%
Morpho DAO Reserve: 19%
Morpho Association Reserve: 6.6%
Reserve for Morpho Labs: 6.0%
Investors: 27.6%
Founders: 15.2%

Token Use Case

MORPHO tokens are used for voting on governance decisions, which involve the following:

Deploying Morpho Protocol core smart contracts over various protocols and blockchain networks
Maintaining the list of listed markets and other vital parameters
Storing protocol data and governance
Treasury management

Team, Investors and Partner

Team

Paul Frambot (Co-founder & CEO): High technical expertise in blockchain. He graduated from Telecom Paris with a Master’s in Blockchain Technology from the Institut Polytechnique de Paris.
Mathis Gontier Delaunay—Co-Founder & Head of Protocol: He has an Engineering degree from Télécom SudParis and a Master’s in Parallel and Distributed Systems from the Institut Polytechnique de Paris.
Merlin Egalite: I graduated with an engineering degree in information technology. Finished the Blockchain and Solidity developer course at Udemy. His experience includes being a White Hat Hacker, spotting smart contract vulnerabilities on Ethereum, and being a Software Engineer at Commons Stack.
Julien Thomas: He has an engineering degree in Data and Digital Engineering from EURECOM and has successfully finished his Master’s studies at Polytechnique Montréal.

Morpho Protocol was founded by fresh graduates, most of whom studied at Télécom SudParis and École Polytechnique in France. The team comprises Paul Frambot, Mathis Gontier Delaunay, Merlin Egalite, Julien Thomas, Oumar Fall, and Evelyne Raby. The team has deep knowledge of blockchain technology.

Most key members are new to the professional world and have not spent considerable time working for large enterprises. One exception is Evelyne Raby, who heads the Operations division and has previously worked as a Program Manager for Amazon.

Investors and Partner

The project raised more than $69 million in capital across three rounds:

October 22, 2021: Seed round raised $1.35 million, led by Nascent and Semantic Ventures, with participation from Faculty Group, AngelDAO, Stake Capital Group, and Cherry Ventures.
12 Jul 2022: The extended Seed round of $18 million was closed, with A16z and Variant leading the charge and participation from Coinbase Ventures, Nascent, Mechanism Capital, GSR, Semantic Ventures, Cherry Ventures, and Stake Capital.
February 28, 2024: Provides Pantera Capital with investment; terms not disclosed.
August 1, 2024: Closed a $50 million strategic funding round led by Rabbit Capital. Participating in the round, among other significant funds, are A16z, Coinbase, Variant, Pantera, and IOSG.

Morpho Protocol is the only lending project since DeFi Summer 2020 to raise almost $70 million and become the lending protocol with the most significant capital in the market. Funds such as A16z, Pantera, and Coinbase participated in the project’s most recent funding rounds. These funds also invest in some of the leading DeFi projects, including Uniswap, Compound, DyDx, MakerDAO, 1inch, Injective, and Ondo.

Roadmap

Morpho Protocol does not follow a specific development roadmap. Instead, the project researches the market, builds products, and then announces them to the community. So far, it has demonstrated a robust portfolio and the flexibility to serve users effectively.

Morpho Protocol will focus on fully decentralizing, including listing MORPHO tokens on exchanges. The team also plans to expand its market reach across various chains, form new partnerships, and support projects integrating with Morpho products.

Conclusion

Lastly, having retained the ideology to improve its offerings, the Morpho Protocol optimizes and flexibles the lending market. This phase competes directly with well-known protocols such as Aave and Compound.

CoinCu rates this as an emerging project that investors should monitor for future airdrop opportunities.

FAQs

1. What is the core purpose of the Morpho Protocol project?

It aims to increase efficiency and ease of access to DeFi apps through scalable, secure, user-friendly protocols.

2. On which blockchain does Morpho Protocol work?

Morpho works on Ethereum and Base.

1. What are some risks in using the Morpho Protocol?

It exposes one to smart contract vulnerabilities, market volatility, and probably governance challenges.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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