# The Watch List: Morpho _Morpho is one of the best performing assets on The Watch List. Why?_ February 27, 2026 • Michael Nadeau --- # The Watch List: Morpho ## Morpho is one of the best performing assets on The Watch List. Why? Michael Nadeau February 27, 2026 Hello readers, As DeFi credit matures, a structural shift may be underway — from pooled liquidity (Aave) to modular, curator-driven markets. Morpho sits at the center of that transition. And its relative *outperformance* in the bear market suggests the market sees something structurally different. We explore what that might be in this week’s edition of *The Watch List.* Topics covered: - [The Team, Capital Raised, and Investors](#the-team-capital-raised-and-investo) - [The Product](#the-product) - [Addressable Market](#addressable-market) - [Financials](#financials) - [Funadamentals](#fundamentals) - [Token Economics](#token-economics) - [Competition](#competition) - [Valuation](#valuation) - [Closing Thoughts](#closing-thoughts) *Please note that you can click the data citation note under each chart to access the supporting dashboard for this week’s report. *The DeFi Report is powered by **[Galaxy](https://www.galaxy.com/?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho)**: helping the world invest, build, and transform — relentlessly. * [](https://www.galaxy.com/?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho)Galaxy is a global leader in digital assets and data center infrastructure, delivering institutional solutions across trading, asset management, staking, custody, and tokenization. Alongside financial services, Galaxy builds AI- and HPC-ready data centers, including 1.6 GW of approved power at its Helios campus, built for scale through every cycle. Let’s go. # The Team, Capital Raised, and Investors ##### The Team - [Paul Frambot](https://www.linkedin.com/in/paul-frambot/?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho): Co-Founder & CEO. Paul leads overall strategy, vision, fundraising, partnerships, and is the public face of Morpho. He co-founded Morpho straight out of school — where he studied distributed algorithms, consensus, and blockchain engineering at Polytechnique de Paris. - [Merlin Egalite](https://www.linkedin.com/in/merlin-egalite/?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho): Co-Founder & Tech Lead. Merlin focuses on smart contract development, protocol innovations, security, and technical architecture. Prior to co-founding Morpho, he was a white-hat smart contract security research/bug bounty hunter at Kleros and a software engineer at Commons Stack. - [Mathis Gontier Delaunay](https://www.linkedin.com/in/mathisgd/?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho): Co-Founder & Head of Research. Mathis is responsible for core engineering contributions, smart contract implementation, and backend/web development for Morpho. Previously, he held a role as VP at Kryptosphere (an AI-powered trading app). - [Julien Thomas](https://www.linkedin.com/in/julien-thomas-48b227173/?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho): Co-Founder & Lead Developer. Julien is head of engineering for smart contract development and backend/web development at Morpho. Previously, he was a freelance web developer and taught math, physics, and computer science. He also has experience as a full-stack developer for social/gaming apps. Morpho is primarily based out of Paris, France. Per [LinkedIn](https://www.linkedin.com/company/morpho-association/about/?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho), Morpho Labs has 67 associated members. ##### Capital Raised & Investors Morpho has raised a total of $68m across three rounds: - $18m of seed capital was raised in July of ‘22. Lead investors included Pantera Capital, Spark Capital, Coinbase Ventures, Cherry Ventures, and more. - $50m was raised in August of ‘24 with Ribbit Capital leading the round. Additional participants included a16z, Variant Fund, Coinbase Ventures, Pantera Capital, Brevan Howard, BlockTower, Kraken Ventures, and more. # The Product ##### What Problems does Morpho Solve? Morpho is a lend/borrow app within the Ethereum ecosystem that matches lenders with borrowers via its decentralized protocol. It competes with protocols such as Aave (Ethereum) and Kamino (Solana). ##### How it Works In pooled models such as Aave, solvency risk is interconnected through cross-collateral borrowing. While each asset has its own LTV and liquidation parameters, risk management must account for *correlated insolvency risk* across the pool. This shared liquidity structure can indirectly constrain capital efficiency for safer collateral types (such as stablecoins), as parameters are calibrated with system-wide stress scenarios in mind (for more volatile crypto asset collateral), effectively coupling risk across markets. By contrast, Morpho (via Morpho Blue) introduces *isolated* lending markets (managed by vault curators), where each market independently defines its collateral asset, loan asset, LLTV, oracle, and interest rate model. Liquidity and risk are segmented at the market level, reducing cross-asset contagion and allowing parameters to better reflect the specific risk profile of each pair. However, protocol-level risks — including oracle dependencies, smart contract risk, and governance decisions — remain shared across markets. ##### Feature Comparison: Morpho vs Aave via protocol docs ##### Key Takeaway & Comp to Aave Morpho allows for more control — isolated markets mean a bad collateral asset can't contaminate your position elsewhere. The permissionless design and custom liquidation loan to value (LLTV) parameters make it attractive to institutional players seeking to structure specific risk/return profiles or lend against long-tail assets. The tradeoff is that vault curation adds an active governance layer you need to trust and monitor (outside the protocol itself). Aave V3 is the blue-chip liquidity venue today. Shared pools mean deeper liquidity and tighter spreads for the most common assets, and the DAO-governed framework (while slower) provides a more battle-tested risk management process. It's the better fit for large positions in major assets where you want predictable execution and broad integrations across DeFi. For most *retail or generalist investors*, we think Aave remains the safer default — the simplicity and liquidity depth outweigh the efficiency trade-offs. For* institutional or sophisticated investors*, Morpho's architecture is genuinely differentiated, particularly if you're building structured lending strategies or need exposure to assets that Aave governance hasn’t approved. At the end of the day, we think Morpho is building infrastructure for *custom* credit markets, while Aave has built infrastructure for *broad* credit access. # Financials ##### Total Morpho Borrow Interest by Chain [](https://dune.com/the_defi_report/morpho?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho)[Data: The DeFi Report](https://dune.com/the_defi_report/morpho?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho) - Last 365 days: $165.5m. These fees are earned by the vault operators ($11.9m) and the lenders (153.6m). The Morpho protocol does not take any fees at this time. More on this below. - Last 30 days: $11.06m ($132m annualized). - 62% of Morpho’s fees come from Ethereum, with 26% coming from Base. Notably, a recent deployment on the HyperEVM already accounts for 5% of Morpho’s fees. ##### Morpho Total 3rd Party Curation Fees by Chain [Data: The DeFi Report](https://dune.com/the_defi_report/morpho?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho) Over the last year, Morpho's 3rd-party vault operators earned $11.9m, or 7.2% of the total interest paid by borrowers. The lenders/liquidity providers on Morpho earned the remaining 92.8% of the borrower's interest payments. You can think of the vault operators as onchain credit portfolio managers. Their role: - Select markets (choose which collateral/loan pairs to allocate capital to) - Set parameters (LLTV, oracle source, interest rate model, caps) - Allocate liquidity (route depositor capital across multiple isolated markets) - Manage risk In short: Morpho provides the rails. Curators decide how capital is deployed. Who are they? - Professional DeFi risk teams - Yield strategists - Institutional allocators - RWA originators If Morpho succeeds long-term, we think the curators could start to look more like: - Structured credit desks - Onchain fixed income managers - Risk analytics firms Apollo/Ares/Blackstone, but onchain. ##### Business Model The Morpho core protocol makes $0 direct revenue today (a fee switch exists but is currently inactive). It has no built-in protocol fees on borrowing, supplying, flashloans, liquidations, or most operations. The Governance-activated fee switch (currently inactive): this would enable a 0-25% fee on borrower interest payments in specific markets. If activated, these fees would accrue directly to the Morpho treasury. ##### Takeaway The philosophy (from founders and docs) is to avoid extraction: protocol fees would be introduced only if governance votes for them (e.g., to fund growth), and even then, the team advocates reinvesting fees into the network rather than distributing them directly to token holders. At the end of the day, lenders receive the majority of gross interest generated in Morpho markets, while third-party curators monetize through configurable performance and management fees. Curators (vault managers) charge: 1. Performance fee: typically 0-10% of the yield generated (taken on native interest earned in the vault). 2. Management fee (V2 only): 0-5% on assets under management, providing steady revenue. # Fundamentals ##### Total Value Locked [Data: The DeFi Report](https://dune.com/the_defi_report/morpho?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho) Morpho currently has $8.9b of TVL, down just 9.2% from the peak of $9.8b in early November of last year. Aave’s TVL is down 42.4% over the same period. In terms of active loan utilization, Morpho is currently at 37% vs 38% for Aave. ##### Takeaway It looks like the capital (TVL) on Morpho is more sticky. We think it’s due to the following: - Aave has historically captured a larger share of leverage-driven, reflexive collateral-backed loans (loans backed by ETH, LSTs, and long-tail assets vs stablecoins for Morpho). - Morpho’s vault architecture resembles onchain asset management, whereas Aave has historically served more retail speculation and “looping.” - Morpho’s capital base is more BTC and stablecoin-dominated, and therefore has less crypto/beta volatility. ##### Active Loans [Data: The DeFi Report](https://dune.com/the_defi_report/morpho?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho) Morpho currently has $3.3b of active loans on the protocol (37% utilization of TVL). This is down from a peak of $4.2b in early November last year (a 21% drop). For reference, Aave active loans are currently down 46% over the same period. ##### Active Addresses [Data: The DeFi Report](https://dune.com/the_defi_report/morpho?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho) Morpho has 2.5x as many active users as Aave today. Over the last 30 days, 60% of these active addresses are coming from World Chain. 28% are coming from Base. 2.2% come from Ethereum. And 2% come from HyperEVM. Despite World Chain’s high active user count, just 0.3% of Morphos fees came from World Chain over the last year, with 62% coming from Ethereum L1. This signals to us that World Chain users deploy very little capital, as confirmed by TVL and active loans data. # Token Economics Max Supply: 1,000,000,000 Morpho Circulating Supply: 356,000,000 (35.6% circulating) ##### Token Allocation & Unlocks - Users & Launch Pools: 4.9%. These tokens were fully unlocked at TGE in November of ‘24. - Early Contributors: 4.9%. Unlocks started in March of ‘25. 1.2m tokens are currently unlocking per month ($2.2m at the current Morpho price) through November of ‘27. - Strategic Partners: 27.5%. Unlocks started in March of ‘25. Roughly 4m tokens are currently unlocking per month ($7.3m at the current Morpho price) through November of ‘27. - Founding Team: 15.2%. Unlocks started in November of ‘25. 6.5m tokens are unlocking per month ($11.9m at the current Morpho price) through November of ‘27. - Morpho DAO: 35.4%. These tokens fully unlock next month. However, they only become circulating when the DAO votes to distribute them for strategic growth. - Morpho Association Reserve: 6.3%. These tokens fully unlock next month. However, they only become circulating when the DAO votes to distribute them for strategic growth. - Reserve for Future Contributors: 5.8%. These tokens fully unlock next month. However, they only become circulating when they are strategically distributed to attract future talent. ##### Takeaway In total, Morpho has $21.4m unlocks/month at the current Morpho price of $1.83. The protocol currently lacks a buyback/burn mechanism. # Competition Here’s how Morpho stacks up against Aave, the leader in its category: - Active Loans: 20% of Aave. Morpho is currently #2 in this category with $3.3b active loans. Maple Finance ($2.4b), Fluid ($1.5b), and Spark ($1.2b) round out the top five. - TVL: 21% of Aave. Morpho is also #2 in this category with $8.9b of TVL. Spark ($6.8b), Maple Finance ($4.7b), and Fluid ($3.7b) round out the top five. - Daily Active Addresses: 2.4x that of Aave (interestingly, 60% of Morpho users are coming from World Chain). Morpho is far and away #1 in this category. - Daily Fees: 27% of Aave (total supply side fees, not protocol fees). - Fully Diluted Market Cap: 98% of Aave (37% of Aave’s circulating market cap) # Valuation - 365-day protocol revenue: n/a (Morpho does not take any fees today — similar to how Uniswap paid 100% of trader fees to LPs until recently) - 365-day Price to Sales (fully diluted): 11.2× (4.4x circulating). For reference, Aave is 2.1x fully diluted (2x circulating). Again, this is based on total supply side revenues (as opposed to protocol revenues). The key driver of valuation is TVL and active loan utilization. ##### Morpho/BTC [Data: The DeFi Report](https://dune.com/the_defi_report/morpho?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho) Morpho is one of the *best-performing assets* on The DeFi Reports Watch List (30 assets) so far in the current bear market. It’s currently down 52% from its all-time high established in January of last year. Furthermore, it’s up 107.7% vs BTC over the last two months. # Risks - Value accrual. The Morpho protocol (and token) accrues zero value today. This is similar to Uniswap prior to its fee switch. - Curator concentration risk. If a few dominant curators capture most of the TVL, economic power could shift away from the protocol (and the token). - Competition. Aave could introduce more isolated markets that offer similar flexibility. - Bad debt. Even though markets are isolated on Morpho, a major blowup, oracle failure, or liquidation cascade could damage trust and institutional adoption. - Cyclicality. Morpho is subject to liquidity cycles, speculation, and stablecoin growth. # Closing Thoughts Since launching in 22, Morpho has established itself as the leading money market app for isolated lending markets. In short: - Aave has become the standardized, aggregated onchain credit market at scale. - Morpho seeks to do the same with more modular, specialized infrastructure. The key question is whether they have a defensible moat. And whether Aave could leverage its brand, lindy, and liquidity to offer similar isolated, specialized markets. We tend to think both can coexist. But if DeFi continues maturing toward institutional-grade, strategy-driven capital allocation, Morpho’s architecture may prove structurally advantaged. As for why the token has held up so well in the bear market? It’s a bit of a head-scratcher to us. Fundamentals have held up well. But Morpho is in its first bear market. It has poor token economics (over $20m in monthly unlocks + no token value accrual today). It has just 20% of Aave’s active loans. And yet it trades at 98% of Aave’s fully diluted value. We’ll continue to monitor the project through the bear market. If you’d like to access our active portfolio and be notified if/when we add MORPHO (or any other assets on The Watch List), you can subscribe to TDR Pro [here](https://thedefireport.io/upgrade?utm_source=thedefireport.beehiiv.com&utm_medium=referral&utm_campaign=the-watch-list-morpho). Take a Report. And Stay Curious. ***Disclaimer****: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.*