A16z co-leads Morpho’s $18m funding round
The Morpho protocol is less than 18 months old after being developed by Paul Frambot, a student in blockchain at Télécom Paris and Polytechnique and Vincent Danos, a research director at CNRS, during a research project.
Morpho, a Paris-based crypto company, has raised $18m in a round co-led by Andreessen Horowitz and Variant.
Nearly 100 other investors participated in this round including Nascent, Semantic, Coinbase Ventures, Cherry Ventures, Mechanism Capital, Spark Capital & Standard Crypto.
Paul Frambot is Morpho Labs’ CEO and co-founder. Just 18 months ago he was an engineering student at Télécom Paris and Polytechnique, an elite technical university in France.
Frambot, alongside Vincent Danos (research director at CNRS,) founded the company during a research project in a bid to make more efficient DeFi lending protocols, algorithms that underpin financial rules on a blockchain.
Morpho Labs is an open-source software development company that programs the Morpho protocol, the result of their studies. It seeks to make decentralised lending and borrowing more efficient.
Morpho is an open-source, decentralized autonomous organization (DAO), allowing users to borrow and lend cryptocurrencies. The protocol is based on the peer-to-peer (P2P) exchange model developed on underlying and already existing lending protocols such as Aave or Compound.
"We believe that decentralisation is necessary for resiliency, equity, and to meet user needs. Our goal is for Morpho to become a true, community-driven DAO. Following Morpho's launch a few weeks ago, the protocol has already accumulated $25m in liquidity and has been joined by hundreds of global contributors," said Frambot.
Morpho Labs makes money through the Morpho DAO as it works to improve the protocol. The DAO meanwhile takes a small fee from its users who also govern how it is used.
“Crypto solves money transfers without a bank and decentralised lending solves lending without a bank,” Frambot told AltFi.
The problem, Frambot says is that there is a large existing inefficiency in DeFi whereby huge rate spreads between the lending and the borrowing side still exist.
"Morpho optimises existing lending protocols like Aave, Compound, etc. It is going to be another learning protocol that is plugged on on top of other lending products," he said.
"You have a lending APY [annual percentage yield], which is 1 per cent, and the borrower APY, which is 3 per cent. This is what we're solving, this should not happen. You have to ask where the money goes?" he said.
The reason why you have this spread is that lending protocols like Compound and Aave are based on the ‘pool model’, he says. This ultimately means lots of ‘lenders’ but few borrowers.
Imagine there is one borrower and three lenders, if the rate paid by the borrower is going to pay 3 per cent and the lenders are going to each earn 1 per cent
“This is completely inefficient. The reason why is because you could potentially have someone matching a lender with a borrower at the mid-rate. So here are 2 per cent. What if the borrower says I want to pay 2 per cent. This is what we were doing at Morpho basically we are going to pair users together. So it's a peer-to-peer layer that is built on top of lending pools such that users get connected directly without going through the pool,” Frambot said.
The new cash will be used to drive the adoption of the protocol.
"Over the course of the past 3 years, decentralised lending protocols have shown incredible promise, as they have facilitated billions of dollars in loans and have been battle-tested in the face of extreme market conditions. However, despite their successes to date, these protocols still don’t offer the most competitive rates to users. This is a major unsolved problem,” said Spencer Noon, General Partner of Variant Fund.
“Morpho is a new type of lending primitive that directly matches suppliers and borrowers and sits directly on top of lending pools like Aave and Compound, unlocking competitive rates on and off-chain. If successful, we believe it has the potential to become a go-to coordination layer of a new global and decentralized financial system." said Noon.