Morpho for the Generalist Investor

This post is an attempt to explain Morpho to the generalist investor, which is another way of saying an investor familiar with crypto but not deep in the weeds.

The motivation behind this is to explain what I believe to be a transformative company that promises to have an impact far beyond crypto, to a reader who may not have heard of the company at all or doesn’t yet fully grasp its potential.

One of the crypto industry’s weak points remains its ability to explain its products to people who are not in the industry full-time. Part of the reason, in my opinion, is that because crypto is fundamentally a back-end revolution, it’s tough to show people new products that leave visceral impressions, like when users first got shown ChatGPT, without launching into an explanation on how the back-end is wired differently.

But often times, it’s the choice of words that leave outsiders confused. We use words like permissionless or immutable and phrases such as owning your infrastructure which can be abstract and difficult to grasp. Yet all these concepts can be reworded in ways that a generalist investor understands. Owning your infrastructure actually means cutting out infrastructure costs. Permissionless means easier to integrate with and immutability means lower costs of maintaining that integration.

So with that in mind, I want to expand on three points to explain Morpho in a way that hopefully every generalist investor who reads this can understand:

I. How Morpho works

II. Why Coinbase is building on Morpho

III. Why Morpho matters beyond crypto

I. How Morpho works

What is Morpho?

Morpho is a lending platform, which just like other lending platforms such as LendingClub, matches lenders and borrowers through software.

The difference is that Morpho runs on smart contracts - software that doesn’t require intermediaries to manage - that sit on a blockchain. The lending and borrowing functionality is encoded into and executed by Morpho’s smart contracts, which enables lending and borrowing activity from users to run on the platform without banks or other intermediaries. One of the key benefits of a financial services platform that doesn’t require intermediaries is a reduction in cost to run the service.

Morpho currently operates as an over-collateralized lending platform, which means that borrowers need to post collateral with value in excess of what they want to borrow. The most commonly used collateral currently is crypto assets like BTC and ETH. After depositing collateral, borrowers can instantly borrow assets, typically stablecoins, up to a defined percentage of the value of the collateral. The loan can be repaid at anytime, at which point the collateral can be withdrawn by the borrower.

Lenders deposit their lending capital, typically stablecoins, into Morpho and instantly receive interest on them. They can also withdraw their capital at any time.

Due to the fact that all capital flows happen on a blockchain, everything on Morpho is transparent and auditable in real time. This ensures that anyone can see for themselves at any time that the platform is functioning as intended. For example, that the full collateral is indeed backing loans and is not rehypothecated behind the scenes.

The Morpho stack

What’s important to establish is that Morpho does not actually make any of the lending and borrowing decisions itself. Rather it provides infrastructure for third party asset managers to build business on top and make those decisions. In the crypto industry they are commonly referred to as "vault curators" or "strategists", but they are in essence asset managers.

The Morpho base layer of smart contracts is thin by design. It defines the borrowing and lending functionality and the deposits sit in these smart contracts. The Morpho base layer is thin for two primary reasons:

1. Security: smaller and simpler codebases are more difficult to hack because they are less likely to contain vulnerabilities

2. Separation of core logic from risk management: Morpho delegates the risk management to third party asset managers and gives them the space to build businesses on top of the Morpho platform

Referring to the diagram above, when users, in this case lenders, deposit assets for yield on Morpho, they do so through third party asset managers that are responsible for risk management. These asset managers decide which assets lenders can deposit, which assets borrowers can post as collateral, and other risk management factors such as collateralization ratio. They have complete freedom to devise their own lending businesses on top of Morpho.

The screenshot below is from Morpho’s own UI. Here we see three different asset managers - SparkDAO, MEV Capital and Steakhouse Financial - offer three different strategies that users can deposit capital into.

Today there are around 30+ asset managers on Morpho. In the future, traditional asset managers like JP Morgan or Fidelity could build lending businesses on top of Morpho as well. Why they would choose to do so is something we’ll cover later in the post.

Integrations with Morpho

A core part of Morpho’s distribution strategy is integrations. Existing apps can integrate with Morpho to offer their customers lending and borrowing products. These serve as both a distribution channel for Morpho itself and the asset managers on top. Users can choose whether to use Morpho through a variety of different access points:

1. Morpho’s own UI

2. The UI of the asset managers

3. The UI of third party apps

Today Morpho is already integrated with over dozens of apps including Ledger, Gnosis SAFE, InstaDapp , Trust Wallet and Lemon. The most notable integration is its integration with Coinbase.

The Coinbase integration

Figure from Paul Frambot’s talk at EthCC 2025

(For simplicity’s sake in the picture above, I combined the Morpho base layer and asset manager layer into one “Morpho” layer)

At the beginning of 2025, Coinbase announced its Bitcoin-backed USD loan product built on top of Morpho. That product is accessible through the main Coinbase app and allows retail users to borrow USD against their BTC holdings held on the exchange.

Let’s walk through how users experience the product, and how it actually works under the hood.

For users

1. Users deposit their BTC collateral on Coinbase

2. Users are presented an amount they can borrow in USDC, which they can instantly convert to USD

Under the hood

1. Users deposit BTC on Coinbase

2. Coinbase wraps BTC into cbBTC, Coinbase’s version of BTC

3. Coinbase sends cbBTC to Morpho

4. Coinbase borrows USDC from Morpho

5. Coinbase deposits USDC into the user’s account

Users have access to a borrow product on the Coinbase app that feels like any of the other products on there. The difference is that this product, under the hood, is built on Morpho.

Since its launch, the product has already surpassed $1b in total deposits and $500m in borrow volume. It’s still only available to US customers and only accepts BTC collateral. Both the geographic coverage and accepted collateral base will expand over the coming months.

II. Why Coinbase is building on Morpho

A natural question is why Coinbase is choosing to build on Morpho, given that as a publicly-listed company with a large amount of resources, it could have built the product in-house.

While there always a multitude of factors that contribute to a decision like this, there are three that stand out:

1. Coinbase can offer better rates

2. It’s cheaper for Coinbase

3. The product can be scaled globally from day 1

Let’s dive into each of these.

Coinbase can offer better rates

By building on Morpho, Coinbase can offer its users lower borrowing rates than if it had built a lending market itself. This is enabled by Morpho’s unified backend, which allows applications that integrate with Morpho to leverage each other’s liquidity.

Let’s walk through an example to make this more tangible.

(For simplicity’s sake in the figure above, I combined the Morpho base layer and asset manager layer into one “Morpho” layer)

1. Ledger has a USDC earn product built on Morpho. A lender deposits USDC into Ledger, which in turn deposits the USDC into Morpho to earn interest by lending it out.

2. A borrower on Coinbase wants to borrow USDC by posting BTC as collateral. The user deposits BTC collateral on Coinbase, which transfers the BTC to Morpho.

3. Morpho sends the USDC that came from the Ledger lender, to the Coinbase borrower. The interest rate paid by the Coinbase borrower is the yield the Ledger lender receives.

Morpho provides a unified back-end for companies to build on rather than needing to build their own. The benefit of a shared back-end is that companies can leverage each other’s liquidity from the start instead of having to build it up themselves. The deeper liquidity they can tap into creates better rates they can offer to their customers.

Below is a comparison of the interest rates for USDC loans backed by BTC collateral that are charged to borrowers on different platforms. Retail users on Coinbase get better rates than institutional borrowers on Galaxy.

Building a lending product on its own would have required Coinbase to have a full banking license, which it doesn’t have and is expensive to get. As a result Coinbase would have needed to build on banking as a service (BaaS) providers like Unit or Synctera.

The chart below compares building on BaaS vs building on Morpho’s blockchain based platform across a variety of metrics.

Morpho is an open source platform that anybody can build on, without requiring Morpho’s permission. There are a host of public docs, SDKs and APIs that make building on Morpho very easy. BaaS providers on the other hand are closed source. This means that whoever wants to build on top needs to get permission to do so first through a vendor agreement and ultimately has no insight into how the platform is designed under the hood.

Once live, an integration with Morpho requires little management from a technical standpoint. Teams know the rules of the platform beforehand and have guarantees that the platform will not change those rules. This is why so many companies are willing to build on Morpho - it is resilient infrastructure. Coinbase currently spends very little resources on maintaining its integration with Morpho. Instead it can focus its efforts around improving the UI/UX of the product. Maintaining an integration with a BaaS provider is much more costly. Their closed source nature means that third party developers need to manage recurring updates to the API and aren't given visibility into the underlying platform for debugging issues.

No license is required to build on Morpho. Smart contracts are non-custodial, which means that ultimately users retain custody over their assets when they are employed on Morpho. The markets are fully automated, eliminating any reliance on human action to uphold the rules of the lending logic. The Coinbase borrow product built on top of Morpho is entirely based on smart contracts and non-custodial. BaaS providers typically want their customers to have some licenses.

Integrating Morpho requires no upfront integration cost and there is no monthly fee. The only cost currently is incurred on a per loan basis, which are charged by the individual asset managers. Building on BaaS is far more expensive. The above costs indicate a range across a multitude of BaaS providers. They are not exact but directionally correct. There is usually an upfront fee required to integrate and recurring monthly costs. On a per loan basis they are also more expensive than Morpho.

The product can be scaled globally from day 1

By building on Morpho, Coinbase can offer an experience that is global from day 1 because the non-custodial aspect of the product negates the need for licenses. This means Coinbase doesn’t need to engage in acquiring licenses in each jurisdiction it wishes to roll out the product in, a time consuming and costly endeavor. Non-custodial products enable companies to dramatically lower the regulatory and operational burdens of creating and scaling global products.

What fundamentally accounts for these differences are the native properties of blockchains. Morpho’s accomplishment is leveraging those powers to develop a unique and compelling product.

III. Why Morpho matters beyond crypto

Ok so now that we’ve established how Morpho works, and why Coinbase decided to build on it, why does it matter beyond crypto? Sure, the Coinbase product is interesting, but how many people want to collateralize a loan with Bitcoin? How can Morpho touch more people?

Tokenization will open the floodgates

Today, users primarily post crypto-native collateral like BTC or ETH to take out loans. As more and more assets get tokenized, the collateral base on Morpho will expand.

Already today, there are tokenized versions of traditional financial assets which can be used as collateral on Morpho. Below we can see tokenized treasuries (mTBILL) and tokenized fund shares of the Fasanara Fund (mF-ONE) used as collateral. Apollo also tokenized one of its credit funds recently that can be used as collateral on Morpho.

Let’s look at a hypothetical scenario in the future when more assets, like shares of companies, have been tokenized.

Let’s assume Revolut has an earn product on its app and Robinhood a borrow product that allows users to take out loans collateralized with tokenized stocks. Robinhood announced recently that it’s tokenizing shares of private tech companies and making those available to their users.

1. Lenders on Revolut deposit USDC into Morpho through the Revolut app

2. A Robinhood borrower deposits tokenized OpenAI shares into the Robinhood app which gets directed to Morpho as collateral

3. Morpho sends the USDC that originated from the Revolut lender to the Robinhood borrower

Ultimately any type of lending activity can be done on Morpho in the future when the collateral base expands. This will expand the potential apps that integrate with Morpho, the types of asset managers that build on Morpho, and ultimately the lenders and borrowers that use the platform.

So revisiting an earlier question, why would a JP Morgen or Fidelity build on Morpho in the future? Well when more assets their clients could use as collateral are tokenized, they can, just like Coinbase, operate a lending and borrowing product that offers their clients better rates, is cheaper to build and maintain, and is global from day one.

The chart above is how Morpho is thinking about its sequential integrations across different company types. Having started by servicing the crypto industry, the next step will be to service fintechs and ultimately traditional banks.

Morpho V2

Morpho recently announced the Version 2 (V2) of the platform, which will be released in Q4 of this year. V2 is a big deal because it will expand the core lending / borrowing functionality. On V2, users will be able to borrow at fixed rates, engage in OTC deals, and will also be able to borrow without posting collateral in some instances. The combination of Morpho’s increasing functionality and tokenization promises to bring Morpho to every type of financial application.