Before the peer-to-pool (P2Pool) money market model became the norm in DeFi, peer-to-peer (P2P) lending was the default design for lending and borrowing. Back in 2018, ETHLend, the predecessor to Aave, facilitated loans where borrowers would have to request their desired interest rate, loan amount, and tenor. Lenders then had the autonomy to choose exactly which borrowers they would choose to fund.
Gradually, money markets began to shift to the peer-to-pool model, where lenders deposit their liquidity in a common pool and borrowers are able to obtain a loan from that liquidity pool made up of individual depositors. The P2Pool model provides more flexibility and ready liquidity. Lenders can withdraw their deposits anytime as long as there is sufficient capital in the pool, and borrowers can repay their loans anytime. The borrow amount isn’t dictated by a single lender, but by the amount of deposits in the pool.
P2Pool lending pools are not designed to be fully utilized, implying an inability to maximize capital efficiency. Interest rate algorithms set optimal utilization rates well below 100% so there is enough liquidity to allow lenders who want to exit to do so.
Consequently, interest income earned by utilized funds is shared across the entire pool. This results in a spread between borrow and lending rates. Morpho is an up-and-coming lending/borrowing optimizer that combines P2P lending with the benefits of the P2Pool model to create a more efficient market for users.
The main advantages of Morpho are higher yields for lenders and lower interest rates for borrowers.
Morpho is built on top of existing lending protocols like Aave and Compound. It enables zero-spread loans by automatically matching lenders to borrowers wherever possible. Morpho also preserves the same liquidity and liquidation guarantees as the underlying lending market. Debt and lending positions move automatically between the underlying P2Pool markets and a P2P credit line as counterparties are found or lost.
Instead of just P2Pool matching, as with Aave and Compound, Morpho uses a hybrid model. It combines P2P matching with the underlying P2Pool market as a fallback. Right now, the two fallback markets Morpho leans on are Aave and Compound, paving the wa
This report is part of Delphi Pro.
Already a Pro member? Log in
0 Comments
