What is Morpho?

Why Morpho built a fixed-rate protocol: price control over the rate lets curators fully control risk and underwrite abstract collateral like identity and payment receivables, not just to lock in a fixed yield.

“As soon as you can control the price, you can fully control the risk and you can start underwriting anything including things that are abstract, right? Like including identity, including payment receivables, including you know all sorts of like proof of credit, right?”

Paul Frambot on why Morpho built a fixed-rate protocol.

“Surprisingly the reason we built a fixed rate protocol is not to get the fixed rate it's to have control on the rate.”

Morpho Midnight: a fixed-rate lending protocol whose price-control mechanism could expand on-chain credit to abstract collateral (identity, payment receivables). Currently used almost entirely by programmatic market makers, with the vault switch deliberately kept off to build lindy.

“Midnight is still is not in the vault yet. It's like a switch we have to turn on in the protocol that we're deliberately turning leaving off.”

Paul Frambot on traditional finance's reaction to algorithmic interest rate models in DeFi lending.

“This interest rate model thing is the most stupid thing we've ever seen.”

Coinbase users hold large unrealized Bitcoin and ETH gains, making Base a uniquely strong market for borrow-lend protocols like Morpho. Robinhood users lack the same long-dated cost basis, so the two chains will attract structurally different DeFi activity.

“One thing that Coinbase has that Robin Hood doesn't is a lot of users who sit on unrealized cap gains on Bitcoin and ETH. And what this actually does, the dynamic here is it makes it makes the coin ba it makes Coinbase and actually base a really great market for borrow lend protocols like Morpho where users who don't want to sell can borrow against their assets.”

Steakhouse implemented a Meta Oracle on Morpho that switches between fair market value and primary redemption value when price deviation exceeds a threshold, a practical defense against oracle whiplash.

“I think it's quite prudent to have, you know, like a meta oracle, like the one that Steak House had implemented on a on Morpho, where you actually get notified and there's a deviation when there's an great enough deviation that, you can kind of switch off between the two.”

Morpho's core insight is that externalizing both interest rate setting and risk to the market allows any type of risk to be priced, which is the prerequisite for enabling undercollateralized loans in DeFi.

“Externalizing the rate and externalizing the risk such that the market can price any type of risk.”

Traditional financial institutions view DeFi's algorithmic interest rate models as fundamentally broken, because they want to set their own lending terms rather than cede that control to an algorithm.

“This interest rate model thing is the most stupid thing we've ever seen.”

Morpho, a borrow-lend protocol on Base, is positioned to benefit from Coinbase users seeking to borrow against long-held Bitcoin and ETH rather than trigger taxable sales.

“Bass and Robin Hood chain look similar but it's possible that the early activity on each is very different. One thing that Coinbase has that Robin Hood doesn't is a lot of users who sit on unrealized cap gains on Bitcoin and ETH. And what this actually does, the dynamic here is it makes it makes the coin ba it makes Coinbase and actually base a really great market for borrow lend protocols like Morpho where users who don't want to sell can borrow against their assets. Robin Hood probably doesn't have the same thing as much as Coinbase does, right? Coinbase has people who are like buying Bitcoin in 2013 and 14 and 15. Robin Hood has more.”

Morpho estimates it would need tens of thousands of curators, including regional banks and asset managers, to underwrite 8 billion people on-chain.

“If you want to underwrite eight billion people I'm not going to do everything on my own right I'm going to need tens of thousands of curators.”