Morpho is a peer-to-peer lending protocol that is built on top of third-party lending platforms. Users interact with Aave through Morpho's interface to receive improved rates for both borrowers and lenders.

Lending

Morpho-Aave

Protocol Code Quality

Protocol Maturity

Protocol Design

Risk Rating

Watch Out

* [Documentation](https://docs.morpho.xyz/start-here/homepage) 
 * Auditors 
 	* [ChainSecurity, Pessimistic and Solidified](https://docs.morpho.xyz/resources/security-and-audits) 
 * Please see our [FAQ on experienced auditors](https://help.exponential.fi/en/articles/6381015-what-are-experienced-auditors)

Exploit/Hacks

green

None

* [Website](https://aave.morpho.xyz/?network=mainnet)  
 * Token: MORPHO  
 * Tags: Lending

Info

* TVL: $203.3M (Rank #36)  
 * TVL Ranking by Lending: #8  
 * Blockchain: Ethereum  
 * Chain TVL  
 	* Ethereum: $141.4M

Key Metrics

Information


- Code reviewed by several experienced auditors including [ChainSecurity, Pessimistic and Solidified](https://docs.morpho.xyz/resources/security-and-audits)
- Public team promotes accountability
- No documented protocol hacks since launch


- Core protocol launched recently in 2022; maturity less than six months increases technical risk as smart contracts are not battle-tested
- Top 20% by total value locked slightly reduces risk
- Governance decentralization is in the roadmap

Risk Assessment

Morpho is a lending pool optimizer that is built on top of Aave. It improves the capital efficiency of lending positions by matching lenders and borrowers through a peer-to-peer model.

What we like

Users are exposed to an extra layer of smart contract risk as they deposit into Morpho's set of smart contracts rather than depositing directly into Aave.

What we like less

Offers users improved rates for both lending and borrowing while preserving the same liquidity and lending protocol parameters.

What it means for you

Summary

#### How Morpho-Aave works
Morpho enables money market users to be seamlessly matched peer-to-peer when available. There currently exists a large spread in existing lending protocols as numerous lenders share the interests generated by a few borrowers. With Morpho, the yield is no long socialized. Instead, the supplied liquidity is matched peer-to-peer with borrowers on a come-and-go basis. Lenders' interests correspond to the interests paid by the borrowers they are paired with. Due to this, the protocol's lending and borrowing rates can be freely adjusted by Morpho but must stay within the spread of the underlying protocol's pool to be profitable for both parties. To match users, Morpho holds an on-chain priority queue that sorts users according to the amount they want to lend or borrow. When new lenders supply liquidity to the protocol, their liquidity is matched with the largest borrower first. And when new borrowers seek liquidity, their demand is first matched with the most significant lender. Overall, users who use Morpho receive in the worst-case scenario the yield of the underlying money market pool or an improved yield due to peer-to-peer matching. There is currently no interest-bearing token because each user has a non-fungible position (similar to Uniswap V3).
#### How Morpho-Aave makes money
Morpho is currently not generating any revenue. The protocol has the ability to turn on protocol fees through a future governance decision. Protocol fees would only apply to a cut of the improved peer-to-peer yield. This means Morpho will not take any fees if users are not matched.
#### How you make money on Morpho-Aave
You can deposit assets on Morpho to earn the base yield from Compound, or an improved rate based on the protocol's peer-to-peer matching engine. You also receive additional protocol incentives paid in MORPHO governance tokens.