Improved Capital Efficiency

As explained in the protocol overview, Morpho improves the capital efficiency of lending protocols with an onchain P2P optimization layer.

When lending on a pool directly, capital is, on average, utilized at 40%. It means that 40% of the funds you are lending are borrowed. With Morpho, when a match happens, the capital efficiency of the loans reaches 100%. If no match has happened yet, then the user is put on the pool with its capital efficiency.

The higher capital efficiency of Morpho leads to higher rates for lenders and lower rates for borrowers.