Core Concepts

Peer-to-peer lending protocols such as ETHLend are capital-efficient but highly illiquid. Conversely, peer-to-pool systems are highly liquid but at the cost of capital efficiency. Indeed, there is always more liquidity available than borrowed (many lenders share the interests paid by a few borrowers, creating a spread between supply and borrowing rates). If you want to dive deeper into the limits of P2P and P2Pool, you can have a look at the following blog posts:

• Lending pools: an imperfect breakthrough
• Peer-to-peer lending: too early to work? — The ETHLend case.

As a P2P layer moving funds in and out of liquidity pools to match users, the Morpho Optimizer protocol offers the same capital efficiency as a P2P lending protocol by de-socializing yields while remaining as liquid as the underlying pool, thanks to its fallback mechanism.

P2P is efficient, pools are liquid, and Morpho is both.

If you are interested in learning more, check out our articles on P2P and P2Pool lending and how Morpho combines the best of both.

The following section explores some core concepts that make all of this possible.