"Web3 Innovation of the Year: Morpho

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Tuesday, February 28, 2023

The Big Whale has just organised its first "Web3 Awards" to honour the personalities and projects that are shining a light on the European sector. There were 7 categories. Morpho won "Web3 Innovation of the Year".

A French project has made a name for itself in decentralised finance (DeFi). Its name? Morpho. The protocol dreamed up by Frenchman Paul Frambot has attracted more than $600 million in stranded value in just seven months of existence...

This is one of the biggest growth stories in the sector and probably what caught the eye of the Web3 Awards jury, even though the project had already been in the news before the launch of its protocol in June 2022 with an $18 million fundraising round.

"It may sound pretentious, but I'm not that surprised to win the prize for best innovation," says Paul Frambot. "We're certainly the team that puts the most emphasis on research in the whole of the DeFi sector. Out of 20 people, there are 17 researchers and engineers. That's perhaps 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 wide gap between the rates at which you borrow and those that remunerate users providing liquidity.

For example, in mid-February we saw a rate of 2.7% for borrowing USDC on Compound and 1.3% when making a deposit with this stablecoin. Why is there such a difference?

It can be explained by the fact that much more capital needs to be mobilised to ensure 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 current decentralised finance, whether in terms of efficiency, but also in terms of risk, model or accessibility for institutional players," points out Paul Frambot.

Morpho's solution amounts to "plugging in" above existing lending protocols in order to optimise liquidity by connecting supply and demand more effectively. In this way, rates fall for those who borrow, while depositors see their returns rise. In the worst case, the rates cannot be lower than those offered by the underlying protocols.

Clearly: all Aave and Compound users have an interest in going through Morpho to do their transactions. According to analyst firm Messari, Morpho was able to offer a rate that was 65 basis points more attractive than going through Aave in the fourth quarter.

But the project is not expected to stop there... "The roadmap calls for us to become independent after a while, our objective is broader than just an optimiser," says Paul Frambot.

Among the major developments expected: the arrival of fees (Morpho is not yet making any money until the regulations become clearer) and the public availability of the MORPHO token that enables governance to be exercised (this is currently non-transferable). According to many investors in the sector, it would be one of the most eagerly awaited by the market...

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This analysis is not investment advice. It has been prepared without taking into account your personal situation, particularly your financial situation, risk profile, and investment objectives.

Before investing in any product, investors should fully understand the risks involved and consult their own legal, tax, financial, and accounting advisors.

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