Morpho initially launched as a decentralized lending protocol, acting as a peer-to-peer matching algorithm on top of both Aave and Compound, improving the lending and borrowing rates whilst preserving the same liquidity and risk parameters. Morpho has recently launched Morpho Blue, a protocol upgrade that is analogous to StakeWise V3, where Morpho allows anyone to launch lending markets in a fully permissionless manner. Each lending market is isolated, reducing the cross-asset risks that exist with large, multi-asset lending pools like Aave V2.
Morpho Blue has a risk management layer that allows Risk Advisors to launch Vaults and select their preferred lending markets. These Vaults act as a channel to funnel assets in and out of each individual lending market, with the Risk Advisor managing how the capital is allocated. A diagram comparing the Morpho Blue approach compared to that of Aave/Compound is found below. More information about Morpho Blue can be found in the Morpho documentation.
The most popular use-case of staked ETH assets in DeFi is borrowing ETH for leveraged staking. Over 1.5M stETH has been supplied to Aave, with the majority used for leveraged staking. Several structured products are built specifically on top of this use-case and leveraged staking in general has acted as an important growth pathway for Lido. StakeWise DAO will continue to pursue a listing for osETH on leading lending markets like Aave and Compound, however the ability to unlock such an important use-case for osETH ahead of these integrations cannot be understated.
The StakeWise team has been in discussions with various Risk Advisors on Morpho Blue to ensure that any osETH-ETH lending market is included into their Vaults, acting as a central distribution channel of capital and ensuring the osETH market gains traction. Re7 Capital will be creating a Vault to target LSTs that are not currently adopted by major lending protocols. They have outlined their vision on the Morpho forums and have committed to include osETH as part of their Vault launch in the coming weeks. This will best position the osETH market to receive capital and ensure any incentives used to boot-strap it are put to good use.
Without ETH supplied to the osETH-ETH market, there will be no capital for osETH holders to borrow against. Just like with Aave and Compound during their initial launch, Morpho requires the incentivization of the supply side across these various markets to bootstrap the ecosystem. Once there is a healthy supply and borrow across a market, they become self-sustainable and are no longer in need of incentives. Lido launched their stETH-ETH market earlier this month and have committed over $300k of incentives over the next 3 months to help bootstrap the stETH market.
We have worked closely with the Morpho team and various Risk Advisors to design an optimal bootstrapping campaign, with the aim to distribute $45k over a 3-month period to kickstart the osETH-ETH market. That equates to a total of 900k SWISE, or 300k per month. For context, the DAO currently spends around 600k SWISE per month to incentivize the SWISE-ETH liquidity pool. The DAO is responsible for the liquidity and integrations of osETH, and as such, the DAO should view this cost as analogous to the liquidity incentives it pays. These incentives will be deployed by the Morpho team as described here.
Morpho are ‘matching’ incentives with their upcoming token, $MORPHO. A forum post has been created to request matching incentives for the osETH-ETH market.
Claim 900k SWISE from the DAO treasury to be used as part of the 3-month bootstrapping campaign for the upcoming osETH integration on Morpho.
The Snapshot can be found here.