Decentralized lending protocol Morpho raises $175M to build the world’s biggest open credit network

The decentralized lending protocol Morpho, widely regarded as the closest competitor to Aave, said today it has raised $175 million in funding that increases its valuation to more than $2 billion.

Paradigm, a16z crypto and Ribbit Capital co-led the round, according to a report by Fortune. Additional participation came from Apollo Funds, Circle Ventures, VanEck, Ledger Cathay, Variant, Wintermute Ventures, Prelude, IOSG, Hashkey, Mirana, NJJ Capital, SBI Group and Bpifrance. It’s the fourth time that Morpho has closed out an institutional fundraise, and it stands out as one of the largest rounds in the history of decentralized finance, the Morpho Association said.

According to Morpho’s X post announcing the round, the investment was structured as a token purchase, with investors receiving MORPHO tokens equivalent to the amount they invested at its monthly average price. That meant the cost of participation varied based on the time investors contributed, and it had the impact of driving MORPHO token prices up more than 10% in the wake of the report. Morpho co-founder Merlin Egalite said in a post on X that the round is “the largest raise in DeFi history.”

The Morpho protocol supports blockchain-based lending and borrowing markets, giving users the option not only to lend and borrow funds, but also to create their own lending pools with highly customized parameters. It’s a very different model from earlier DeFi lending protocols, which were heavily reliant on shared lending pools with uniform rules embedded at the protocol level.

With Morpho, anyone can earn interest by depositing cryptocurrency into lending pools, providing funds for others to borrow against. To borrow funds, users must deposit collateral that’s locked into a smart contract, and then they’ll be required to keep up with the regular repayments they’ve agreed to, or risk having their entire collateral liquidated.

Morpho’s high level of customization makes it especially appealing for institutional financial firms. Banks, asset managers and cryptocurrency exchanges can create and access lending and borrowing markets with full control over aspects such as the collateral standards, risk limits, asset selection and counterparty exposure.

Protocol co-founder Paul Frambot said the funding will help Morpho to build a global credit network. “We’re building the open credit network for the world, connecting those with excess capital to those who need financing, globally,” he explained.

The kind of open, blockchain-based credit markets operated by Morpho operate continuously, connecting capital providers with borrowers across jurisdictions, enabling them to settle their transactions in a fully transparent and public way. It’s a model that has long been regarded with lots of promise, but scaling it requires institutions to trust the technical design, risk controls and market structure enough to use the protocol for more than just crypto trading activities.

Paradigm General Partner Frankie, who goes by a single name, said Morpho represents a long-term institutional opportunity: “In the years to come, every bank, asset manager and pension fund will want exposure to onchain credit markets.”

Guy Wuollet of a16z crypto shared similar sentiments. “The simplicity and security of [Morpho’s] technology continue to push borrowing and lending forward,” he said.

Morpho said it will use the funds from today’s round to deepen its commercial and technical integrations with strategic partners with a view to expanding its credit infrastructure into new products. That suggests it’s building a business plan that’s less about building more isolated lending protocols, and instead focusing on embedding its lending tools within existing platforms that already cater to both crypto-native and traditional financial users.

Image: Morpho