MetaMorpho combines the best of isolated markets and multi-asset lending pools to create a better way to lend. In time, we believe MetaMorpho vaults will become the default lending solution.

Today, we are introducing a four-part series explaining why, starting with Part One: Intro to the Morpho Approach & Simplifying Isolated Markets.

The Morpho Approach

There are two main approaches to structuring lending markets in decentralized finance: lending pools and isolated markets. The former excels in providing a straightforward user experience and aggregates liquidity but lacks the efficiency and flexibility needed for significant scalability. Conversely, the latter unlocks notably higher levels of efficiency and flexibility but introduces a more complex user experience and liquidity fragmentation.

So, the question arises: How does one combine the simple user experience and aggregated liquidity of lending pools with the efficiency and flexibility of isolated markets.

The answer: MetaMorpho + Morpho Blue.

Morpho Blue is a remarkably simple and immutable lending primitive that enables the permissionless creation of isolated markets. MetaMorpho is a separate protocol for creating MetaMorpho Vaults (lending vaults) on top of Morpho Blue.

Although built independently, MetaMorpho vaults are fully integrated into Morpho Blue. At the base layer, Morpho Blue provides efficient, secure, and flexible isolated markets. Built on top, MetaMorpho vaults simplify the lending user experience and aggregate liquidity offering users the best of both isolated markets and lending pools.

Simplifying Isolated Markets

First and foremost, a MetaMorpho Vault makes lending to isolated markets as simple as a lending pool.

When using a multi-asset lending pool, a lender only has one option, however, with isolated markets there could be several markets for one loan asset. For example, Morpho Blue could have five options to lend USDC: sDAI/USDC, wstETH/USDC, wbIB01/USDC, WBTC/USDC, and WETH/USDC.

Each market also has parameters such LLTV, oracle, and supply caps that lenders must consider. In other words, users are required to perform risk management themselves.

A MetaMorpho vault eliminates the complexity of risk management by creating a single point of entry. Rather than requiring users to make multiple decisions, they can simply deposit USDC into a USDC MetaMorpho Vault to allocate liquidity.

Not only does it make it easier to supply, but it helps to improve yield. As market conditions change, a vault can rebalance across markets to optimize interest earned by lenders.

In the end, MetaMorpho vaults provide users with the same simple user experience as a multi-asset lending pool with the benefits of lending to isolated markets.

This marks the end of part one of the Understanding MetaMorpho series. Next week, we will release Part Two: Enabling Diverse Risk Profiles.

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