DeFi
DeFi risk manager Gauntlet joins Morpho after dropping long-time partner Aave – DL News
- Morpho, the DeFi risk manager, will become a “risk curator” on Morpho.
- Morpho recently launched a lending protocol that will directly compete with DeFi lending stalwarts Compound and Aave.
- The move comes less than a week after Gauntlet announced it would soon end its four-year relationship with Aave.
Less than a week after announcing it would end its often-controversial partnership with DeFi lending giant Aave, crypto risk management firm Gauntlet has partnered with Morpho, a competing lending protocol.
Last month, Morpho released a protocol that allows risk management experts to create – and profit from – their own lending and borrowing pools, which Morpho calls “vaults”.
While other leading companies have already declared their intention to create custom safes, Gauntlet, once estimated at $1 billion, is among the largest.
Morpho founder Paul Frambot said this was a major step in an ongoing paradigm shift in decentralized finance. We are moving away from protocols actively managed by digital cooperatives called DAOs, and an army of well-paid consultants.
Instead, some developers create simpler protocols that effectively outsource complexity. This allows users to personalize their own experience.
Other examples include a future version of Uniswap, the decentralized exchange and stablecoin issuer MakerDAO, whose founder is pushing for a revision this will see cooperative management split between several closely tailored “sub-DAOs” with limited ability to modify the base protocol.
This decision comes amid tensions with members of Aave DAO, the cooperative that governs the Aave protocol.
Just two months after negotiating a one-year deal worth $1.6 million with Aave DAO, Gauntlet COO and co-founder John Morrow said last week said the company will soon end its four-year relationship with the cooperative, citing “inconsistent guidelines and unwritten goals.”
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Meanwhile, an Aave delegate recently proposed a proposal this would effectively pay Morpho users to migrate to Aave, call Morpho’s “optimizer” product is a “leech” that “brings no profit and steals potential revenue on the scale of millions per year.”
Frambot defended Morpho the X and in an interview Monday with DL News.
“There’s no clear answer as to whether it’s parasitic or symbiotic,” he said. “However, when you look at the data, we made them a lot of money.”
Blue Morpho
Since its inception, DeFi lending has been dominated by two protocols – Aave and Compound – which operate similarly.
Launching in 2022, Morpho “optimizers” reduce the gap between lending price and borrowing price on Aave and Compound by matching users peer-to-peer where possible.
Morpho is now the fourth largest lending protocol on the Ethereum blockchain in terms of the value of its crypto deposits, and the third largest in terms of crypto borrowed. He exceeds Composed earlier this month.
Morpho is one of the largest lending protocols on Ethereum.
In January, Morpho launched a direct competitor to Aave and Compound: its own lending protocol, called Morpho Blue.
While lending protocols typically manage risk on behalf of users with the help of consultants like Gauntlet, Morpho Blue will allow these experts to create their own lending and borrowing vaults.
“Anyone can come and build on it, which means you can recreate Aave V3 exactly on Morpho Blue,” Frambot said. “But that would be a specific use case on top of Morpho Blue. You can also do Compound, you can do Spark, you can do Flux, you can do SEC registration. [vaults].”
“Commanding the Gauntlets”
This would save Morpho money it would otherwise spend on consultants, while giving the project a new, potentially lucrative opportunity in which it could put its expertise into practice by directly managing users’ money.
“For them, it’s a change in business model,” Frambot said. “Every risk manager in the industry is looking for ways to grow their business.”
Gauntlet works with several major DeFi protocols, including Uniswap, Compound, and EigenLayer. The company is still in the process of ending its partnership with Aave DAO, according to Nick Cannon, the company’s vice president of growth.
During his four years as an independent risk manager with Aave DAO, Gauntlet repeatedly clashed with Aave stakeholders.
Gauntlet’s contract renewal was no exception: When the contract was renewed in November, some Aave DAO members questioned Gauntlet’s work for Morpho.
“For ACI, moonlighting for direct competition is unacceptable behavior,” longtime Aave contributor Marc Zeller said during the Aave Governance Forum, in an apparent reference to Morpho, according to Cannon.
“Gauntlet agreed to work for a protocol designed to directly compete with the Aave DAO. We view this fact alone as a solid basis for initiating an immediate ARFC to cut off the Gauntlet feed and pull them in place.
Another contributor, Matthew Graham of TokenLogic, asked how Gauntlet would “ensure that learnings from Aave and Compound are not directly incorporated into Morpho v2”, given the company’s “level of involvement in both Compound and in Aave”.
Cannon said Aave DAO members were “asking for exclusivity without paying for it.”
“No other service provider, including those in the Risk category, is held to the same exclusivity,” he added.
In a volatile, 24/7 market like crypto, recommendations for lending and borrowing settings can quickly become outdated.
“We have a main objective in adjusting the [lending and borrowing] parameters, many of which are quite similar to what we have done historically,” Cannon said.
“You want to be able to maximize capital efficiency when times are good and the market is healthy. This is difficult to achieve with a multi-day governance cycle.
The first Gauntlet safes will likely launch within two weeks, Cannon said.
“[We] I want to make sure I hold vaults that are underserved either by risk parameters or specific markets,” he said.
While Morpho Blue presents a new opportunity for companies like Gauntlet, it will also create a more competitive landscape, Cannon said.
“They are trying to commodify the Gauntlets of the world,” he said, referring to risk management companies like his.
Aleks Gilbert is a New York-based journalist who covers DeFi. Do you have any advice? Send him an email to aleks@dlnews.com.