Morpho Labs, a decentralized lending project backed by Variant and a16z, has released a white paper for a new protocol that it hopes will provide crypto’s emerging decentralized lending market with a more robust and efficient foundation, according to a release shared with The Block.
Morpho, which one announced an $18 million raise last May has flown under the radar versus credit protocols such as Compound and Aave, with founder Paul Frambot admitting the project had not focused enough on marketing to the US market. Originally launched as a layer on top of lending protocols to match borrowers and lenders in a peer-to-peer manner at lower rates, the new protocol, Morpho Blue, represents a pivot to a base layer.
At its core, Morpho Blue aims to reinvent the way decentralized lending is structured, removing the reliance on DAO participants to manage the parameters around which assets are transacted and introducing a simpler alternative based on what it describes as permissionless risk. management.
“DAOs are also not best suited for operational scale and can often become a bottleneck as the protocol grows,” the white paper notes. “What we will present is in line with the vision that DeFi should be organized in layers around reliable and open protocols like the internet.”
To achieve this goal, Morpho Blue employs a strategy of isolating markets through individual asset vaults, which operate autonomously without the need for manual intervention from the DAO to adjust risk parameters. This approach allows lenders to provide capital to higher-level borrowers while maintaining lower overall risk compared to multi-asset pools because they only have to worry about the risk of one asset. As for pesky gas costs, Morpho Blue’s pursuit of simplicity reduces gas consumption by 60% compared to the alternative lending protocol, the project claims in marketing materials.
Morpho blue
Morpho Blue addresses the challenge of fragmented assets by allowing additional layers to enhance the core functionality of the base layer, unlike the one-size-fits-all approach used by other credit protocols.
“Morpho Blue externalizes risk management by making it a separate layer of the stack with unlimited permutations, rather than the one-size-fits-all approach we see in today’s lending services,” Frambot said in an email to The Block. “Therefore, institutional players can integrate it into their own risk and compliance management systems. On their side, crypto risk managers could even rebuild the classic credit pool abstractions such as Aave, Compound, Spark or Flux, but on top of a common trustless system. , efficient and flexible primitive.”
Frambot said conversations with several institutional players indicate that the DAO model is a non-starter for them to enter the decentralized lending space and that it is “clear that they do not want their funds managed on their behalf and subject to specific compliance rules.” ” requirements.”
Morpho Blue externalizes risk management and allows institutions to integrate it into their own risk and compliance management systems.
Compared to the go-go days of 2022, decentralized lending activity has been modest, with Compound’s total value standing at only about $1.6 billion, compared to well over $20 billion at its peak.
Aave’s outstanding debt has fallen from a peak above $8 billion to more than $2.2 billion earlier this month.