Morpho Labs
Morpho is a decentralized protocol enabling overcollateralized lending and borrowing of crypto assets on the Ethereum Virtual Machine implemented as an immutable smart contract designed to serve as a trustless base layer for lenders, borrowers, and applications. [1] [2]
Overview
Morpho is a decentralized protocol enabling the overcollateralized lending and borrowing of crypto assets (ERC20 & ERC4626 Tokens) on the Ethereum Virtual Machine. The protocol is implemented as an immutable smart contract, engineered to serve as a trustless base layer for lenders, borrowers, and applications. [1]
Decentralized, overcollateralized lending and borrowing
A decentralized, overcollateralized lending and borrowing protocol is an autonomous system that allows users to borrow assets by providing more collateral than the value of the borrowed assets, and lenders to earn interest on supplied assets. [1]
Basic features and components:
Collateralization: To borrow assets, a user must provide collateral as a crypto asset supported by the protocol.
Liquidation Loan-To-Value (LLTV): The protocol specifies the minimum value of collateral required relative to the borrowed assets. For example, if this ratio is 90%, the value of borrowed assets must not exceed 90% of the value of the collateral, or the position is eligible for liquidation.
Borrowing: A user initiates the borrowing process by interacting with the protocol. They specify the amount of the asset they want to borrow and provide the required collateral.
Interest Rates: Borrowers pay interest on the borrowed amount. The amount of interest paid is based on the interest rate model used by the protocol. Interest accrues over time and is payable when the borrower repays the loan.
Repayment: Borrowers can repay the loan at any time by returning the borrowed assets plus accrued interest. The borrower can retrieve his collateral from the smart contract once the repayment is confirmed on the blockchain.
Liquidation Mechanism: To mitigate the risk of default, protocols include a liquidation mechanism. Suppose the value of the borrowed assets exceeds the LLTV (due to market fluctuations or interest accrual). The position may be liquidated in part or full to repay the loan and any outstanding interest.
Lending: A user initiates the lending process by interacting with the protocol. They specify the amount of the asset they want to lend and transfer these assets to the smart contract.
Withdrawal: Lenders can withdraw their loan assets plus accrued interest at any time, assuming the market has enough liquidity. [2].
Permissionless market creation
Another feature of Morpho is permissionless market creation: the protocol allows users to create isolated markets consisting of one loan asset, one collateral asset, a Liquidation Loan-To-Value (LLTV), an oracle, and an interest rate model (IRM).
This is a departure from the existing paradigm and traditional lending platforms which:
- Require governance approval for asset listing and parameter changes.
- Pool assets into a single lending pool, sharing risk across the entire protocol.
In Morpho, each parameter is selected at market creation and persists in perpetuity. Or, in other words, are immutable. The LLTV and [3] interest rate model must be chosen from a set of options approved by Morpho Governance. [1]
Market Structure
Markets in Morpho are identified using a specific naming convention: CollateralAsset/LoanAsset (LLTV, ORACLE, IRM)
Example market structure:
- CollateralAsset: wstETH
- LoanAsset: WETH
- LLTV: 94.5%
- Oracle: ChainlinkOracle
- IRM: AdaptiveCurveIRM [1]
Funding and Development
Morpho Labs has secured $70 million in funding from prominent investors including:
- Ribbit Capital
- a16z crypto
- Coinbase Ventures
- Variant
- Brevan Howard
- Pantera
- Blocktower
The most recent funding round in September 2024 raised $50.0M, led by Ribbit Capital [2]
Pre-Liquidations
Introduced on February 27, 2025, Pre-Liquidations enables any application built on Morpho to offer borrowers opt-in loan management features, such as auto-deleverage and auto-close.
For any Morpho Market, anyone can configure custom liquidation parameters—when they trigger, what percentage of a position closes, and the associated penalties—that would occur before default liquidations. [4]