A French project has made a name for itself in decentralized finance (DeFi). Its name? Morpho. The protocol devised by Frenchman Paul Frambot has attracted more than $600 million in value in just seven months of existence...
It's one of the biggest growth stories in the industry and probably what caught the attention of the Web3 Awards jury, even though the project had already made news before its protocol launch in June 2022 with an $18 million fundraise.
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"It may sound pretentious, but I'm not that surprised to win the award for best innovation," says Paul Frambot. "We're definitely the team that puts the most emphasis on research in the entire DeFi industry. Out of 20 people, there are 17 researchers and engineers. Maybe that's why we still have some work to do on marketing" (laughs).
Morpho's great utility is that it makes lending applications like Aave or Compound, whose role is to lend cryptos that have been deposited by other users (for an interest), more efficient.
As you may have noticed when using these tools, there is a very large gap between the rates at which you borrow and the rates that compensate users for providing liquidity.
For example, in mid-February we see a rate of 2.7% for borrowing USDC on Compound and 1.3% when making a deposit with this stablecoin. Why such a difference?
The reason is that it is necessary to have much more capital mobilized to provide liquidity so that everyone can borrow or withdraw funds at any time. But this is not very optimal in terms of capital efficiency. "There are still too many flaws in the current decentralized finance, whether in terms of efficiency, but also in terms of risks, model or accessibility of institutional players," reminds Paul Frambot.
Morpho's solution is to "plug in" on top of existing lending protocols to optimize liquidity by connecting supply and demand more efficiently. In this way, the rate goes down for those who borrow, while depositors see their return increase. In the worst case, the rates cannot be lower than those offered by the underlying protocols.
Simply put: all Aave and Compound users are better off using Morpho to do their trading. According to analyst firm Messari, Morpho was able to offer a 65 basis point better rate than going through Aave in the fourth quarter.
But the project should not stop there... "The roadmap foresees that we will become independent after a while, our objective is broader than a simple optimizer", says Paul Frambot.
Among the major developments expected: the arrival of fees (Morpho is not yet earning money until the regulations are clarified) and the availability of the MORPHO token to the public, which enables governance (for the moment it is non-transferable). According to many investors of the sector, it would be one of the most expected by the market...