MORPHO protocol — how to improve AAVE
Projects like Aave and Compound have long been key components of the DeFi space and are used by most market participants. However, this doesn't mean they can't be used to create something new and better — that's precisely what Morpho is trying to do.
Why Morpho is interesting
"Classical" decentralized credit protocols based on the mechanics of pools have a significant disadvantage — the capital is not fully used. Part of the funds in pools inevitably remain "unclaimed" and are not transferred to borrowers as loans.
This naturally decreases the profitability of providing liquidity to such protocols since not all the funds blocked in the pool "work." On the other hand, it also increases the cost of loans for the borrower, as platforms are forced to at least partially compensate liquidity providers for capital inefficiencies by raising rates.
Morpho partially solves this problem by increasing the efficiency of capital utilization. The protocol is a rate optimizer for the Aave and Compound pools and relies on their infrastructure.
The protocol places liquidity providers' funds in the Compound and Aave pools and uses funds from these pools to make loans. However, suppose a matched liquidity provider-borrower pair is found (the first one provides 10,000 DAI, and the second wants to borrow 10,000 DAI). In that case, Morpho provides direct provisioning, de facto switching from a pool to a peer-2-peer (P2P) model. However, the liquidity provider can withdraw its funds at any time without waiting for full repayment — the protocol will automatically replace its funds for the borrower.
As a result, Morpho users at least get terms and rates similar to Aave and Compound, which is not bad in itself. However, if the rate optimizer "works" and finds a peer-to-peer pair, both the borrower and the liquidity provider get better rates. The difference in the size of the rates can easily reach 25%.
However, the developers will not stop using third-party infrastructure — the ecosystem includes the Morpho Blue lending protocol. As it grows, the platform has every chance to become a "full-cycle protocol" that relies entirely on its infrastructure.
That said, Morpho took less than two months to become one of the biggest players in its industry. As of mid-January 2025, the blockchain (TVL) market was over $3 billion.
MORPHO token
The MOPHO token is the platform's control token, used to vote on protocol development and changes to its rules. For example, the token holders set the size of the "optimized" interest rate.
In addition, MORPHO is paired with other tokens and locked in Morpho Blue pools to provide liquidity.
The token began trading on major exchanges on November 20, 2024, and has steadily grown. As of mid-January 2025, MORPHO is trading at around $2.78 and has a market capitalization of over $454 million. Out of a total of 1 billion tokens, about 166 million are in circulation.
The listing price was $1.2696, which is a pretty good growth rate. But even more importantly, MORPHO's positive trend has been stable for most of the asset's short history — after a short drawdown in the first week of trading, the token has been steadily rising. The historic high of $3.6436 was reached on January 5.
Morpho prospects
The MORHO token is one of the most promising new assets on the cryptocurrency market. It is backed by a successful lending project, quickly reclaiming its market niche and already representing a solid competitor for the leaders of the decentralized lending market. The token itself demonstrates stable, gradual growth, which has every chance to continue if the favorable situation in the crypto market as a whole continues. However, it should be remembered that investments in new assets and projects are always characterized by increased risk.