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Externalized Risk Management

Traditional lending platforms incorporate mechanisms that allow token holders to participate in risk management on behalf of users. However, this approach restricts the number of listed assets, confines users to a single risk profile, and is not scalable. Morpho (formerly known as Morpho Blue) removes these limitations by separating risk management from the protocol.

Permissionless Risk Management​

Instead of relying on governance to list assets and manage parameters, Morpho is designed to leave choices up to the users. It allows anyone to create markets with any loan asset, collateral asset, risk parameters, or oracle and for users to interact with any deployed market.

Under this approach, users can independently assess and manage their risk and return without restrictions imposed by governance. This allows Morpho to satisfy broader risk appetites and support diverse use cases.

Advanced lenders benefit from the added flexibility, but for users accustomed to risk management being done for them, interacting with Morpho directly can be too complex. However, Morpho was designed so that risk management layers can be rebuilt on top of the protocol to simplify the user experience.

One example are Morpho Vaults (formerly known as MetaMorpho): a permissionless risk management protocol that facilitates the creation of lending vaults on top of Morpho markets. A curator will allow the vault to supply to multiple markets and depositors can delegate risk management by supplying to Morpho via Morpho Vaults. Passive lenders can supply WETH to a Morpho Vault. That vault allocates WETH liquidity to any number of Morpho markets with WETH as the loan asset. Instead of the user assessing which markets have the appropriate collateral, LLTV, oracle, and IRM, the vault does it on their behalf.

Current Lending Pool vs Morpho Approaches

Morpho Vaults are only one example of permissionless risk management on top of Morpho. Any entity, DAO, or protocol can build services and tools that help manage risk on behalf of users.

Importantly, risk management is performed externally from Morpho. So any adverse outcomes, like fund losses from technical issues or poor management, do not affect Morpho itself.

Minimizing Governance​

Morpho is designed to be a base layer for decentralized lending. Alongside immutability, removing the ability for governance to halt or modify markets is key to enabling completely trustless lending and borrowing. Learn more in the Governance & Fees section.