Welcome to the epicenter of the show is talks about the
Technologies projects and people driving decentralization and the
blockchain revolution. I'm suggesting cuchillo and I'm
here today with Medicare and just today, we're speaking with
botafogo who is CEO of more for labs, more for labs is building
the Morpher protocol, which is a default protocol that allows As
you to improve your borrow and lend apy on on lending
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Try at Omni dot app. So Paul thanks for joining us
today. It's been a long time coming and
so yeah, happy to have you here. Yeah, definitely.
Thanks for having me. I'm super excited to join today.
As I mentioned before, I've been listening for a center for as
long as I was into crypto. So very excited to be here
today. Super nice.
So, how long exactly is that boy?
Tell us about your background and what do you have to be
formal foe? Yeah, definitely.
I think my journey in crypto began when I was in high school
and like, basically, you know, it was pure technical interest
into blockchain up first. So is more into consensus
algorithms and, and in Bitcoin in 2015-16 and really went into
my stutters, did it, computer, science and math.
Did a lot of work into like blockchain technology and how
there's consensus algorithm could scale and ended up being
interested. Specifically in if Theorem and
more. The application layer is smart
contracts and and then D Phi and D Phi was really to me it's such
an interesting use case of blockchain Technology.
That's a I could not do anything else but work into that space so
I just thought I'd put some research efforts there and yeah,
this is how you know step by step.
I came to to play around a protocols and I mean play around
theoretically I mean like playing was the Concepts of the
protocol. I never really used defy in my
previous, you know, before going into awful.
And then I started designing protocols, like more for it and
came to do more for laps to drop them off a protocol.
So that's how I got into this basically.
How come you never use / beforehand despite the fact that
you were quite knowledgeable about about it?
So busy what was missing for you to actually go, you know,
headfirst into it and I think it was as simple as gas costs.
You know at the time I was like and I never invested in crypto
specifically because I was too young to do.
So at the time, like I did not pass my 18 years old and
basically when I went into, To crypto.
I like I could see you know all those girls exploding but they
could not participate which was quite frustrating but then when
time comes to play around with defy I was like gas price was
completely out getting my season portfolio basically.
So that's probably the reason why but, you know, in practice I
was more interested in Reading why peppers.
And and you know, trying to make sense of what, you know, you
just hope was doing and what weights different from Some
traditional Finance what it brings to traditional Finance.
What could it? You know, what value?
It could bring to the world in general, I think it's not a
question. We asked sufficiently often
especially in Defy. Is like, what is the specific
added value that we bring to the end-user like if device Cal's to
to make billions of users? But yeah, I was it was more
intellectual interest. I would say that, you know,
playing around So, I remember when you guys were just getting
started and you you gave a talk at the Kiln office.
I think it was probably one of the first talk to you gave and
you know, explaining the concept of Morpho.
And you know what are the things that I thought was just like
wild about your story and the story of the team is that when
more for launch, you guys are all still in school.
And in fact, I think the idea for Morpho came from one of your
professors. Can you maybe just retell that
story and yeah? How the, how the idea come to
be? And that definitely, I think so.
Back in I would say 2020, I had really two passions like the
first one was blockchain technology and the second one
was enterpreneurship. And so you know intrapreneurship
we often tell you like you have to get some sort of unfair
Advantage such that You have something that you're that make
you, you know, different from others and make you stand out.
And this is how you become successful in entrepreneurship
and was that in mines. I really love blockchain to, it
made sense to develop change stuff and I decided to my goal
at the time was pretty ambitious.
Was like, I want to be the most knowledgeable entrepreneur about
blockchain about the technical specifics about blockchain in
France. And so I decided to take every
single course unlike Sarah. A whole course on blockchain and
defy in Paris that existed. So I had like, you know, maybe
10 or 11 courses on top of my existing courses at University
that I would take. And I came to to meet some of
the best researchers in that space in Paris and and together,
we formed a think tank. And in that think tank we we
basically met every, you know, twice, every every week, and
basically, you know, just chat and discuss about mechanisms.
What? I can do better about them and
then I would say like more for is a construction, a collective
construction of so many different ideas that all came
together and that the premise of it was during the same tank and
like we had so many people saying hey like okay compound is
doing the things this way when it's out there doing this this
way and what are the technical limitation to be able to have,
you know, better 100% Capital efficiency while still being
liquid? This kind of Russians and we
ended up with the premise of more for.
And then I said, okay, like let's get serious about this
confounded more for labs and really regrouped a team of focal
Founders. That as you mentioned were
students at the time, which was quite funny.
But I mean somehow, you know, spending 10 years, 20 years in
investment Banks can sort of, you know, probably constrain
your branch too much such that you would not think of No, doing
things and defy the same way, a student with no experience in
traditional Finance. I mean, no professional
experience would do this, is this is how we started.
And, actually, until six months ago, I was still going to school
and I just finished my head of state internship few, few few
months ago. And I'm here to get my diploma,
by the way, but that's, that's another story.
Yeah. That's incredible.
And you guys, you know, I think it's also been really
interesting about your journey is that that like you guys have
built this protocol and just a few months ago, closed a very
impressive finding around with some pretty, top-tier VCS, how
did that come to be? And what was the, what was the
kind of Journey to getting, you know, a sixth easy, and all
these, all these investors on board?
Yeah, I think it's a good question.
So maybe first just like to mention that it was during a
market conditions that were quite favorable.
Of course, it does not do it at everything, but like, that's
probably not something that would be as easily doable.
I don't mean it was easy, it was hard to do, but it was maybe
even harder in those market conditions, obviously.
But basically, at the time we just had the concepts but it was
such a zero to one in terms of mechanism design and Observe
like how the team internally at mobs is conceptualizing.
And thinking about Defy is like maybe we'll have the chance to
talk about it was radically different from what other
Protocols are doing in terms of you know Landing but also in
terms of Dexter's excetera. So we really wanted to be very
very Innovative and at the same time so we had very very
Innovative mechanisms and at the same time we had a products that
made so much each sense. Right again we'll probably talk
about it but it was a pure Improvement of something that
already had a huge markets and probably the biggest Market 15
in hold. If I at the time which was
basically collateralized lending on Aven and compounds and Morpho
is literally like a improvements of that.
And so this is where like hey like this thing is working, it
has a huge Market, this is Ivan compound.
But more for is here is I have like fresh new The think about
things differently, but on top of that, they provide a product
that is same risk. Parameters.
Same liquidity. And has better rates so that
could not fail. And I mean, this is what they
said to them. When investing, at least really,
I think this is like, pretty much the story.
It was the rounds last round of funding that we did, is mainly
composed of American visas, which I think is worth
mentioning because we struggled in Europe before being
successful in the u.s. like the story somehow had more.
Or fit with the US visas like European business was like,
we're probably, you know, maybe not as, as well as from the does
the American ones, but I just thought it was interesting to
see how of a gap that was between the reaction in the u.s.
versus in Europe. So, yeah, I'd probably
something. I don't know, some sort of fits,
it is, I don't really explain it to be on it.
Cool. So we've talked a bit about the
setting. Let's dig into the protocol
maybe before we kind of get into the weeds in a nutshell.
You already said that. Basically, it's a protocol that
centers around lending and borrowing and it strictly
improves on compound and Ava why these are 40 claim and so can
you talk about what the protocol does in a nutshell?
Yeah, absolutely. So Morphers The Landing protocol
so basically, you'll Annenberg crypto assets on mofo the same
way you would do. And I have a compound order,
whatever Landing protocol of a collateralized lending protocol
bag system in D5. So basically, when you're
Landing, there is a bar that comes that put some collateral
to work and borrow your money, and it's a very low risk low
rewards profile, because every loan that is taken, is Cured by
some collateral. So in case the collateral cannot
be backing the fully the loan, then the liquidation happened.
And so in every case, the lender should, if equations are
working, well, be able to have some sort of risk free.
Yeah, yells. So in terms of product, this is
what it is. And now, what's different from
Ivan compound is, actually that mofo is built on top of a van
compound. So if you have compound, you
have an instant Morpho called more for compounds.
That is working on top of contact.
Same thing for a be, there is other protocol and there is more
for every protocol that is built on top of morph have a.
And basically, why is that? So it's because morph is going
to optimize our way and it's going to optimize Combi.
So, the question is, what do we have to optimize?
And if you go to our website or to camp on website, if you look
at the rates you you quickly, Is that you have a huge spread
between the landing and the borrowing rates, like 1% to land
or 3% to borrow. Okay.
Basically, the reason why that spread is is because those
protocols the weather work. Deeply needs to have a ton of
either liquidity in them that is not put to work and that is
going to induce this bread. So it's let's say Capital
inefficiency, we can dig into that baby if But without getting
into the details that have, you know, this is Matt realized by a
spreads which more for is going to optimize by just taking the
mid right. For example, and say, hey
instead of landing at one, using more farther, you'll be lending
it to. And instead of borrowing a free,
you'll be buying at two or more far away.
So that's the overall concept. You get better rates on Avedon,
more fun, more flavor than a V and you preserve all the, the
risk parameters that you had an IV.
So you get the same. Cultural factors and and sort of
this sort of things and you get access to the same liquidity,
which is like billions of dollars on eBay.
How do you manage to actually get the apy down from the borrow
AP wire from compounding up from the Lend apy from compound.
Yes, that's a good question. So in order to understand that
we have to explain how the mechanism Works in a vase.
So basically don't have a or compound basically lets head a
pool because they're working. Very, very similarly, you have
basically many lenders or it's applying to the same pool of
capital and you have very few bars and those powers are paying
three and those lenders are earning one.
And the reason why that is is because the numerous land I'll
going to share the earnings generated by the few borrows,
the three is going to divide it into multiple ones, given across
all the put. So yields generated by Burrows
is diluted across all the book. It says, the reason why more for
is more Capital. Efficient is based basically
saying, hey, your are lending producer, you are borrowing from
from other, for example, you're learning from IV, when
basically, you could be lending and borrowing at to, like, I'm I
mean, the concept is simple, like, I'm landing at 2%,
someone's. He really could take my my load
my deposit for 2% of a boring API.
And this is what more for does more for is building.
A peer-to-peer matching engine that is built on top of the
landing pool that enables Landing pool users to be much
product here. Whenever there is an opportunity
to increase their rate, either A lender or to decrease the rates
in there are Barra, so it's a small Improvement it represents.
Basically, what it means is instead Of having a diluted
share of the capital that is put to work.
They get older Capital that is put to work which results in an
increase of like plus 0.5 + 1 % EP Y, which is reasonable in
this market conditions, to be honest, how people dealt with
the spread before more followers, were there any other
Solutions or like other attempts to try to reduce this spread?
I mean, you guys are doing it by matching 40's and lenders
directly in a sort of peer-to-peer way.
Are there other approaches that one can can Implement here to
have a better efficiency of capital when doing lending?
Yeah, absolutely. There's many different ways that
could work. We went through a very specific
implementation before Morpho. One of, the reason why nobody
went for something, I would say more for similar is because
actually this spreads was hidden by liquidity mining.
So As of contacts into certain 20 21, 22 lending.
Protocols spend a lot of money Distributing tokens to their
users and you had a 1%, you know, USD, see if you are your
three percent barring a peony Rose to see, but on each side of
the market would get distributed to percent in which case you'll
get a much better. If you are in this spread, I
would say virtually or artificially is disappearing.
And probably the reason why no one came Umm, you know, for a
solution like more for before is because there were doubtful
about the fact that we was was ever going to stop a day or not.
And and we really started innovation of mofo by betting
that you know rewards I wouldn't we're not going to stand like
forever, right? This is basically Protocols are
losing money and meeting rewards so they could not do that
forever which they stopped pretty much the day.
We will not we launched more for so so that would be one of
Reasons why, second reason, why would probably be the complexity
of it. It's not so easy to do
obviously, but does not mean like the one would have ever
done it especially if we manage to do it, to do it, but I said
those are the two biggest fraction to actually make it.
Okay, so I kind of, I want to talk about how it works on a
nitty-gritty level, before I go to like the economics of it.
Does it work for you? Boy.
Absolutely fantastic. So let's talk about the matching
engine. So basically say, I want to post
a position to lend some Capital. What do I do?
Do I post a message or do I already?
I mean, do I have to pay gas for my transaction?
Yes. Absolutely.
So the matching engine is fully And so, basically more for is a
smart contract, it's completely unchanged and it's a smart
contract plugged on top of RV or compounds.
Where users instead of interacting with Ava directly
and using the supplied borrow withdrawal repay functions of
the problem is, it would be using the supply border with
Israel, repay functions of more flow.
And then more for is going to, let's say as a lender, let's
have the very first person to land on Awful.
I'm going to deposit 100 die. I'm going to be put in the list
or any kind of data structure and my liquidity is going to be
put on the pool. So I'm yielding at 1% which is
the apy of the port and there is no country party to match me.
So basically, like there is there was no other way, just
more full puts you into the Parlor, but you are in the list.
And, and now bar comes in. And when the bar, It comes in is
going to say hey I want to borrow.
What's a deposit some he's as collateral and is going to
borrow 100. I and both ways going to look
into this data structure so let's say it's a cute to
simplify and say okay the first member of that Q is posting
liquidity on our way. Let's withdraw this liquidity
from a v in order to give it directly to the borrow and this
is how, you know, broadly, the matching engine works.
Okay, so when I post something to the queue, it's immediately
matched against our compound. And if there's a counterparty
within Morpho, I am matched against the counterparty.
And basically, the over collateralization of the lending
pool on our compound that kind of results in the, in the
healed. Being split several ways,
between different lenders, goes to the soul lender, that is now
match peer-to-peer EPS that kind of a good summary.
Yes, I think it's a nice way to think about it.
Yes. How do you stop people from
submitting, lots of small orders that the borrower will then have
to pay gas for matching? Yes, that's an excellent
question. And that's actually the reason
why you can do for a first-in first-out model as I was
describing and actually you have different ways you can.
Solve the problem one way would be.
Okay, let's just do a pool inside of pool, and this way,
you don't need any q and is just, you know, a pool with a
higher utilization of the capital, and so, but that works.
But at the same time for different reasons, it's not
optimal in terms of capital efficiency.
So the Q does not work. Because basically, someone can,
as you mentioned, Supply One sense, like 1,000 times.
And basically DDOS the the matching engine.
So you have to come up with different ideas.
One of the most simple one and this is the one that we started
with is basically to sort of part of the list.
So in the blockchain environment, you have a limited
complexity that you have available in order to do
operations. Otherwise gas would basically
explode. And so we came up with what we
call, Semi sorting lists web server The list, we're basically
it's trivial. We just have a hip, the
basically, a data structure that is able to get us, the biggest
users across like the top ten and then the rest is a fearful.
So, basically, when they Loop into the matching engine, I'll
get to, you know, if I'm borrowing, I'll be much first
with the biggest lender second with the second.
Biggest lender, etc, etc. So I'm sure that I'm going to
get liquidity out. Out of it.
And I won't be DDOS. And then I, when I go into the
fearful, and so this is kind of, you know, the simplest
implementation and that's a, you know, solve the specification of
the problem that we were given in the first place.
And this is the one we decided to to implement.
This is other more complex and interesting way to solve the
problem that we've been working on as well.
Okay, so basically larger lenders at lower rates, are
prioritized I understand correctly.
And then basically my question kind of that follows from that,
if they're later, comes a better lender borrower, to the to
Morpho, is everything else, reshuffled?
No, it is not in the current implementation of more food is
not. So, basically, if you get
matched, no one can match. You, even though the proposed, a
better rate, like something actually, in more for, you can't
really prepare the raid. There is one period of Pure joy
for everybody. But you can, you know, this is a
limit of the design, right? It would be better, of course,
if everybody was able to, you know, get more competitive about
their rates and every time I re-propose something, that is
better, everything gets reshuffled, such that the market
is more efficient, but the limits here.
And the reason why we decided not to go for this kind of
solution is simply gas cause it's like doing it on layer 1.
Maybe it's doable on other chainsaw related to like Like,
there's a strain or or, you know, seek a saying or this kind
of things. But on layer 1, it's very hard
to, you know, come up with a I would say constant time
algorithm that they're all those kind of matching computer pure.
So that was probably the reason why we we decided not to have
this reshuffling mechanism, even though it's a, it's a good
Improvement to have. Obviously, if you don't take gas
goes into consideration, When you blend in a traditional like,
Javier compound, your liquidity is being posted up to, and it's
basically collateralizing all of the loans that that are that are
being taken out by borers. As you said earlier, there is so
much more liquidity that is covering, so its capital in the
efficient, but that means that as a, as a borrower, I can come
in and out of that market. And and and I can sort of always
be borrowing assets across this pool of collateral.
So as a lender, if I'm matched with a borer and now that borer
wants to take their collateral out, how is my loan now being
collateralized knowing that it's just like peer-to-peer thing
rather than boring against this massive pool of collateral.
Yeah, that's an excellent question and that's probably the
first Cornerstone to the The more for protocol and how all
this mechanism, you know, unwrapped.
So I'm going to attempt this as simply as possible.
Please, you know, feel free to ask me, intermediate questions
here if you need it. But basically, let's get the
intuition for an example first. So, if we come back to this
example, where Alice was providing 100 died and Bob
providing 1e in order to borrow 100,000 mofo.
Basically, What's Happening Here?
Is that Alice her 100 die is going to get in.
Into the pockets of Bob and Bob can basically, you know, since
the, the old oak electron is much prettier Bob can just, you
know, turn the Hafiz is machine go offline and do whatever you
want with the 100. I, and at this point in time,
let's say, Alice is alone. There is no die like more food
as access to know die. So how could she be, you know,
able to withdraw and and this is what more of a Souls is like,
how do you have 100%? So the efficiency without, you
know, while staying liquid. And so what happens here when
Alice is going to click, the withdraw button is the
following. So Alice triggers the, which
will function and more for is going first to unmatch Alice.
And Bob say okay, I listen Bob are not even are not match
anymore because Alice is about to Israel.
So more for these to reconnect, Bob with someone and Bob is
going to be reconnected with the The pool itself.
So what's happening here is that mofo is going to take a loan of
100 died on the bull, with the east of Bob and give that 100
die to Alice such that Alice can withdraw at any time.
So basically, yes, we have 100% Capital efficiency, there is no
die, but since the borrow that is taking on the die, has put
some collateral. Then, this collateral can be To
the actually boring on compounds and and match the position such
that Alice can withdraw at any time.
I hope that was clear. I can go into, you know,
different explanations of that if necessary.
So basically, then what's happening is that compound or
Ave is acting as a backup mechanism in.
So, you fall back to you fall, back to compounder Ave rates.
If there is no lender, So if there's no, yeah, there's no
lender to back your position. Exactly.
Yeah. I think it's interesting.
And maybe I did not mention sufficiently.
Clearly in the beginning is important to mention that
mournful not always offers the pure pure pure, which is in the
middle. It's offers the pure pure pure,
if a match is found from the borrower and the lender side and
if comfortably accountability leaves or is there is no
counterparty available, then there is a full back to the
underlying pool. So basically, in terms of Acts.
It's a landing protocol. That provides the same
respirators, the same liquidity, and at least the same rates as
are they right? Worst case scenario, you get the
other yields from a borrower or from A lender perspective and in
average you'll be much peer-to-peer and enjoy a better
rate. So if you look at oven compound,
the reason why the borrow and lend apis are different from
one. Another is to ensure there is
sufficient exit the quiddity, right?
Because basically the user experience, if you want to
withdraw your funds from a pool and you can't because it's still
borrowed and you can't fool three payment unless it's unless
the loan is underwater, you can't withdraw your funds and
basically what will happen, then There's that the raids are just
until it is economically unviable to kind of keep paying
the interest on those loans and so on but it's a bad situation
for the lender because you're under the impression that in
principle you can exit at any time.
And that's why that's why the rates are so different because
basically they have to make the poor bigger.
So that basically, in like 99.5 percent of cases, everyone who
wants to Exit can exit, the put asthma for your kind of
piggybacking off of that mechanism.
So basically you're using the Ava and compound exit liquidity
and kind of take the most lucrative deals, the land and
borrowed years of large of large lenders and borrowers because
those are prioritized of large lenders, and kind of skim that
off the top. Yes, so I assume you guys are
done contact with carbon compound.
How do they feel about this? Yes, I think it's an excellent
question and this is a question I get asked all the time is.
I mean, this is true, that's more for the way.
It's design is taking volume from a VA and, and from Compound
on the borrowing and the landing site and more for is, you know,
it's a bit of a weird relationship because it's a bit
competitive in the sense that we're taking market shares, but
on the other ends more for is, you know, Printing, you raised.
I mean rights that are not have sufficient, like actual
efficiency that is enabled him to defy rates that were not
possible before. And so, this is interesting
because basically we're unlocking you use cases, news
usage. We're basically lenders, would
not come at 1%, but they would come at too and thanks to more
for their now coming. And, and I have a, is getting
the, a little bit of a share of that.
That through the full-back borrowing volume or the
full-back lending room. And if you look at compound, for
example, I don't know if that's still the case, but at least for
many months, this year more for was the biggest bar of compound.
And that's very interesting because actually compound does
not have so many organic berries.
When you look at this, the the data of compound most borrowers
and compound, which is the most important thing for compound
because they bring the money in is actually artificial Burrows,
farming. W most of the time, not always,
but most of the time. And so more for actually, proved
to be the biggest bar to the biggest money bringer to the, to
the compound protocol. So, you know, I I don't want to
hide the fact that more face competitive.
It is to some extent, but it's also growing the pie for
everybody. And I think like Roberts from
from compounds and and standing from from IV got this right?
And, you know, I had the chance to talk to Robert's like to DM
him. About this a few times.
And I think, you know, he and he and Stanny Express sometimes as
themselves about it very briefly, but I think this is the
right way to think about it. I hope that was clear as a as an
explanation. Yeah, that's clear.
Do you have any actual data about how many of the users your
vampire, talking away from compound and oven?
How many you are actually organically bringing to the
table? I never fetch the data, but I
should definitely. I think that's interesting.
And I think, you know, the market would decide in the ends
and in any case morph is inevitable.
So we'll have to do with it anyway, whatever the result is,
He's kind of glossed over the fact that in matching borrow us,
to lend us directly, you're also taking rewards from the port, so
basically you not only are you taking share but you're also
making the rewards on the poor smaller than they otherwise
would be right? Yes.
Maybe you can add a little bit of reflection on that is users.
So first mouthful, if a user is put on the boot, if no
counterpart is matched. Then the user is put down the
pool and is earning rewards more for is not taking any cuts on
that and it's just giving it back to the user.
And so, so muffled just give the comparative to the, to the
lender, or the borrower that did not find a match.
If the user is matched, then the user is out of compound and
experiencing a better rate. Better native rate like in
Native you know in the East for example and in which case the
lender or the borrower is actually removed from the pool.
So there's more Rewards Remaining for the rest of the
book. I don't know if that's clear.
Well yes but the it that they're removed from the poor because
100% of the money they're lending is borrowed.
So basically if that were to be, I mean I mean this is I don't
think this computes what you mean?
No, I think says there is a bar coming.
So, and extracting A lender, or the opposite from the pool.
In which case those users that were previously earning rewards
are not earning Rewards. Boards anymore and my father are
not earning the country words there are much credit.
I totally understand that part. But so basically to me, the
question, is the borrower that comes in a new?
What that borrow otherwise have gone to our or compound or what
they have just refrained from taking a loan.
So basically, if they had refrained from taking a loan, I
totally get your line of argument.
But basically I'm skeptical that people who actually come to
Morpho, wouldn't otherwise have defaulted to going to our Ave or
compound. Oh yeah, I think like you're
right. Like it depends on the use case
like there's some places where you only want to add yourself
with to borrow if the rates is lower and in some cases where
you would have gone anyway to have a because like whatever the
race you want to borrow and in which case you go to Morphine
which case this is the vampire set of things but there is a not
vampire set of things where you can only offer to borrow at 1%
or You just have a use case at 1% in which case you come to two
more full. And there is the fullback of
that if there is no match, that is found or only a part of the
match that is found that is for biking to to have a for the bar
inside. Sure.
Absolutely. If your price that you're price,
I told I totally get that. Let's, let's talk about the
preferential treatment of larger lenders, right?
So basically on compound and Ava, everyone kind of gets the
same Rewards In proportion to how much money they put up
whereas for, for more fo ways. I met first because of, you
know, gasps efficiencies because everything is unchain, it's and
it's not, it's not a pool mechanism.
What happens to small lenders? Is it even, is it even feasible
or attractive for them to actually come to Morpho?
Yes, that's an excellent question.
So maybe first something that I want to end the line is that
it's a difficult like it's a it's a different of the
mechanism that we had to sort users is because we have we were
so constraints about a serum that we had to sort about of the
YouTube. But, you know, ideally, we would
not want any previous trip, preferential treatment on the
size of the notes. Now, this is solved by having
small lenders. Regrouping together in a single
smart contracts which happens usually like usually you know,
end users are not interacting as well as are interacting with
protocols that are themselves. Interacting with more for, it
means in which case they had can have like you know bigger size
and have more chances to be much all together.
So that's one thing. And yeah, I don't want to teach
too much about what we're doing but like the problem is sort of
a okay? And what happens if someone On
from this larger, this pool of people who kind of just got
together to kind of co-invest in Morpho, what happens if one of
them wants out, how do you get them out?
Oh yeah. Basically one lender.
So to the eyes of Morpho, this V is just a normal user and so
they can withdraw our share of like a mofo, you can withdraw
our share of what you have. So okay, let's get to work shall
withdraw. Yes.
Okay, quit that's super good. When you guys take a borrow
position on Ave or compound. Like you mentioned earlier that
you were one of the largest borders on compound, you're
earning compound. Like comp rewards for that.
Can you talk a little bit about what those tokens are used for?
And I think more broadly, I'd like to understand the token on
mix of Morpho because as a Morpho user, you're also earning
more more for tokens. And so, what's the interplay
here? R between that and you know,
broader token Onyx and how they work.
Yeah, I think we're very like minimalist in terms of talking
design and that what we want to achieve visit again like we
really want to, you know, every proposal that we're going to
make on the Dow to have even evolution of the token is is
going to be very minimalist. And we want that.
Every step that we take makes sense is actually useful for the
protocol and its users. So coming back to your question,
is the comp tokens are all redistributed to compound a to
the motherfucker. Company users.
So if I'm landing and my position somehow, you know,
abstractly is ended up on the pool.
Then I'm running those rewards and morph is going to account
for those and is going to give them back to you.
So there is no cut or whatsoever that is taken by more for like
this is not the idea so that's one thing that this is the
second thing about the morph targets that on top of that,
whether your match whether you're not match, your always
get more for targets. It to you to your lender and
borrower positions and those are kinds are not transferable for
the moment, please. And basically, the idea here and
the motivation is not, you know, to increase the apy.
I'm a firm non-believer on yield powered by Garden sockets.
However, it's your to decentralize the protocol.
Like in my opinion, it makes sense to have daos and protocols
governed by Investors contributors and users.
Like it's in my opinion, a good equilibrium to have the three of
those that can have a say in the governance and the long term.
So that was important to us to, you know, kick starts in some
way, some sort of liquidity mining program as it is done on
Morpho. And there is also this good
effect of bootstrapping rights in the very you know, the first
millions that we had I think more for now is almost at half a
billion. The difference millions that we
had was like 100% of it. Not I 100% bit like maybe 99% of
it was analyzed. Like we interpreted it as
liquidity, Manning right. Which is not the case.
Now is like because we had Fair volumes were able to, you know,
discuss more Integrations. And I think this is the way talk
and should be used. I want to talk about the
governance in a little bit of more.
Vo Dao. I have one last question for the
protocol, sorry, to kind of dig deep here.
So obviously a cool part of a landing, protocols is
liquidation. So if a position is underwater
and the borrower is matched with a lender, typically, you could
anyone can kind of liquidate that position and and take a cut
off of the cholesterol. So I mean I assume I think it's
exactly the same unlawful but obviously sometimes it goes
wrong. So basically sometimes there's I
mean there's still some risk involved so sometimes prices
crash too fast or no one actually liquid AIDS because gas
costs are too high or something and on compound and other.
Obviously this is a communal has risk because basically this is
just unrepaid debt from from the poor.
So basically this Ross gets redistributed to all lenders.
What happens on more for if a if there's a liquidation failure,
it does the person who's matched with the person with the
borrower that has that mishap happen actually, you know, to
they end up empty-handed. Yeah, that's, that's an
excellent question. So, we often say pure pure
matching because it helps conceptualize the mechanism of
For more fo but in mofo actually you never matched with a single
control party. It's just the state.
It's like I'm in a peer-to-peer and hence States or I'm not in a
peer-to-peer Annette States and so there is it feels like, okay
there is one country party which I'm bearing the risk of, but
this is not the case. Like the way it works is like
when you have your money that is put in the pool, then you bear
the risk of bad depth. Under the /.
Okay, so if Aventura some bad habits, you're also interesting
about it is your position is match peer-to-peer you have
shared loss. So first, something that I want
to mention is that you have the same cultural factors the same
articles Etc as on a v. So there is no specific
parameter that would, you know. But yeah, I think that's
important to mention. But now if we put in the
scenario where for some reason, Reason Liquidators or not.
I would liquidate then the loss is shares or call all more for
users. So it's not specific to one
counterparty but it's a smaller subsets as the other protocol.
Is that designs of the question? Yeah.
That answers the question perfectly.
So kind of it's like a gated community within the within the,
within the other. Okay.
Yeah, no I think I understand that.
I think this also solves a question that I had on the
regulatory side, Because basically, the reason why
protocols, like carbon compound, a huge largely unregulated.
This because you're always just deal with a smart contract.
Whereas, if you have a dark counterparty this kind of this
kind of preferential treatment usually goes away in most
jurisdictions. So kind of actually matching
people peer-to-peer also comes with legal downsides?
Yes absolutely. And I think this is why you know
to the really Eight to talk about Landing protocol and and
the prefer talking about, you know, liquidity pores or, you
know, you don't lend your supply liquidity or you deposit
liquidity. But yeah, here it's a pure pure
States but at the same time I want people to understand.
So I say pure pure matching but but yeah, that's it's clearly a
mutual estate. Yeah.
I'd like to jump to using the product because I, you know,
you're like yesterday I You know, looked at my Instagram app
and I was like, oh hey my Ave positions are not yet on Morpho
and and maybe I should just move them over there and benefit from
better better rates. So, one question I had was when
you're using more fo are like when you say that you use this
phrasing of like enhanced like an enhanced position where your
you basically like you know, more forward.
I feel it's sort of like this Progressive enhancement of like
a Ending pool to a peer-to-peer but you always fall back as a
user. Is it made obvious that you're
lending. Position is either matched on
Morpho or you've Fallen back to compound is that like clear to
the user and also the rate that you're getting?
Yes it's a it's a good question. I think it's hard to have a good
user experience with such a complex you know can is am, I
would say, but basically I'm compound And I have a you have
those sea targets that are basically not so useful, except
for user experience. This is no technical interest in
having a see talking or I tuck and she's just a representation
of something. Yes.
When you have a tokens you you see the token yields like in
your pot, for your, you know, how much it's worse and it's,
you know, a very user friendly Behavior.
Unlawful not all positions are treated equally and because of
the, you don't have like the acid. 20, for example, you could
have in some World, them sort of an FTE that we did.
Think that, that was an even worse, user experience having an
FD and that people might throw it out, you know, not knowing
what it was. So we're like, okay, maybe
that's not a good way to go. And so, basically, this is a
work, the front end has to do. So when you go to instead of,
for example, is a do it extremely well, you did tell you
like what is your average? And if you go to morph was like
interfaces with as well, the one developed by muscle-ups the one
developed by mutative team like we have many, many different
front-ends and usually what they're going to do is going to
say, Hey, you have 100 interior appear, 100 in pool.
Okay. So it's like Alf Alf.
So we're going to make an average of your All of your
rates and such that to use. You're just not feel the complex
care that doesn't make sense. So your position can be spread
out. Yeah so your position can be
half or there. Could be What proportion of your
presents first portion. Reposition that's backed by like
a peer-to-peer learning more fo and the other would be backed by
some some position on compound or exactly.
Yeah. And it's the work of the front
end to average that and make it similar such that you have an
average API. And why is it that there are
like two separate like Morpho compound and more felawe?
Why wouldn't you just be utilizing the liquidity in both
of those pools and sort of finding ways to optimize like,
so basically, like finding the better rate depending on the
assets, you're boring against for the user and sort of just,
you know, adding the ability to add any sort of liquidity, pool
underlying, like, one more photo interface or Tracked.
I think two reasons. The first one is complexity.
Many, many, protocols have tried, you know, aggregating
letting protocols and the mostly all have fails to some extent.
And probably, the reason why is because the not every protocol
share the same risk, and they're not the same, the sense that
they take different collateral factors approaches.
So, it's easier for the landing side of things.
You can say, hey, like, We will select the pull with the more
interesting API, but if you start on so aggregating borrow
positions at the same time, then it becomes, you know, it's hard
because you have to decide on risk is like, you have to
decide, which collateral Factor, I'm going to use.
Like, I'm going to use the clutch on factor of our way of
compound or the most conservative of the to, and as
soon as you say, I'm going to use the most conservative of the
two. You're not an improvement
anymore, you just a different product.
And so in terms of product decisions, Asian.
It was, it was basically a product decision that I took
was, okay. I want to be an improvement of
something. I want to be able to, to improve
something that I know for sure has a market.
And so that's why we decided to separate in order to have like,
no trade-off. However, like this definitely
room for, for you, no more complex mechanisms, where you
could aggregate those different protocols in a more advanced
way, I would say, Hmm. Okay, so this is like a lot of
complexity and aggregating different liquidity pools that
that doesn't exist. They would like, aggregating,
you know, like if there's so many D Phi e like defy adex
aggregators that and that think the problem has been like mostly
solved. Yeah, definitely.
I think it's a matter of, you know, risk rewards rather than
just rewards and so it's for that reason it's it's an
additional Dimension and you have to take into account and
aggregation process and then come The navi, we're not made
to, to share the liquidity with a partner.
So when you can borrow on the one, you come around the other.
So it's it's very hard to have this sort of aggregated to its
visible, but it's complex so we thought like, as a first step,
you know, our first protocol should be something fairly
simple, and this is why the matching engine has a lot of
room for improvement. This is why we're not
aggregating, but maybe in the future we'll be able to release
more advanced versions. I totally understand where
you're coming from and basically as a defy user you kind of you
want to be very specific about which protocols you're fine
with. So basically at least you'd
actually have to disclose to the user which protocols you kind of
mix by default and have to have have them, allow them to opt out
of that and so on. So I actually do think that
especially since everything is on Shane, this is probably too
much overhead. Head for not that much reward.
Yeah, definitely. I think this room for, you know,
actual defy middlewares like, you know, you're in finance,
full finances, Etc. Try.
Actually, you know, makes at least the landing side of things
and makes different strategies or rebalance and stuff like
that. But this is like a different
user kind. We really wanted to be as low
level as possible, not just, you know, as close to A Primitive as
we could be. And yeah.
Pretty. And you also you also get
natural rebalancing anyways, right?
So basically, it's not like no one's making the markets as I
mean, there's tons of what's out there.
They're kind of tried to get the years to commensurate numbers.
Yeah, exactly. And actually, maybe one last
thing to mention about that topic.
Bizarre things. Interesting is rates are not so
well, Arbitrage, and the reason why is they're not arbitrary set
because it's not because butterflies Eeyore.
But have not been coded but have been coded.
It's just that they don't have the same appreciation of risk on
every single protocol. And that, yeah, you have a
premium in like, you know, the reputation of a protocol Etc.
And this is like, so complex to factor in a smart contract,
obviously. What's the talk about the
integration? So we already talked about
instead app that was announced like last year.
And what's cool about that is if you have like an Ave position,
you you essentially don't have to unwind that position.
You can just have it be refinanced by Morpho.
I haven't done that yet but I think I'm I think I'm gonna hit
the button on thats pretty soon. But yeah.
What other Integrations do you have to improve the usability?
The and sort of like people's ability to use Morpho, I think
we have a bunch like, we all talking to, you know, you have
to kind of Integrations like protocol Integrations and no
more data and analytics integration.
So, we're talking to a bunch of websites to get more for in
approximately everywhere and you have a lot of funds as well.
Integrating with more for and doing their complex quad stuff
like a hedging and And and stuff like that.
But we have as well, protocols, like V table, coin or genius
dollars table coin that are using their collateral and the
put their collateral to work on the more for protocol.
They say, hey, like we want better yelled for our stable con
users or saving rate or whatever we are going to use, we're going
to use this. And so yes, we have like, for
example, D5 H that can help you, you know, head your Should
systematically. When you're managing units of
the three positions, we have spoon that I was mentioning a
bit before which enables you to diversify your D5 portfolio.
We really have a bunch of those and many coming in the pipeline
as well. But, you know, to be fair and I
think that's a good ending nodes as well.
Is that I feel like there is a ceiling to that gross, as well
as like. Okay, we're like, I think we're
top three Landing protocol at the moment with like like 500
million or close to 500 million in deposits on this area.
But I do feel like, you know, those are just different
equations, 4, d 5 things that are often powered by defy
Dawkins. And I feel like there's like of,
you know, actual real world connected use case in all this.
And I think that's going to be a challenge for us to reconnect,
somehow more food to those real usage.
You know, take the fight to the next level.
Quiz. So, let's kind of shift gears a
little bit and talk about the Morpho business model.
How do you guys make money, you know, other than raising money
from American Reese's? That's, that's a good way.
But of course, joking here. Some overlaps is, is a software
development company making money by doing contributions to Dao.
And so, ideally like the idea, you know, way of making money
for us is basically proposing things to the mall for Dow that
are going to, you know, be proved hopefully and that we are
paid by the Dow to produce This research and enhance the
protocol the same way. Ivy companies is doing it
somewhere. PG Labs is doing it for our way.
For example, that raises the question of how more for makes
money and The answer is mofo in, its current form is able to take
a cut on the Improvement that is made from a v or from compounds.
So it's basically you making one percent apy on an avid 11.5 on
the mofo of it. Then more for is able to take
let's say 20% of that Improvement and taking 0.4
percent of the volume that is matched.
So it's just a kind of the Movement.
There is nothing like that is actually lost.
And this is theoretical, so it's implemented but it's not turned
on. So currently the protocol is not
making money. So, how I mean, basically, if
it's just a fee that's turned on, how do you guard yourselves
against me? Just, you know, taking your code
and fucking it and kind of lowering that 2.1%.
And how do you make sure this there's extra structure?
Value in the protocol itself in the user base and this doesn't
actually end in a race to the bottom.
Yeah, that's a an exam question that I think every decide
contributor should reason about in some way or another.
So you have different ways to make this happen.
One obvious way is to have a be USL license, which is the case
of a very free company for Indians have be free.
This is not the case of more formal for gtn copyleft license.
So you can you can forget, if If you wish to do it and basically,
the reason why I think we wanted to go that route is we believe
in as system grow more and more complex, we believe in network
effects, you know, being able to retain users.
Even if it's at the cost of like a 0.1%.
He and the reason why that is especially true for complex
systems, is that security and You know, the trust in the Dow
and the contributors themselves can be valuable for users, like,
okay, there is a brand behind it and when you look at lending
rates, it's actually interesting to see that for example, of is
capturing a ton of the lending volume even though they're not
offering you know as beneficial rewards as as compound for
example and some underlies it I'm not saying this is what's
happening but I'm just saying that someone that I is it as
basically the network effect of a were people.
Trust more, Avid the brand and everything.
And so you have, you know, quantitative questions here is
that? How much does that represent in
practice and how much like this network effect is going to
retain value? And how how big the secret could
be Etc. But I think, you know, in the
end we have not built something that is yet to revolutionize the
world and it's this that is legitimate in really extracting,
a lot of other To wit, I think the current thinking is for us,
yes live, thanks to fundraising not turning on a fee because
there is legal or so legal. No considerations on that and
work as much as possible to build something that has, you
know, even greater traction. And where it's actually worth
taking a great attraction and also create a network effect.
So I think we're not, we remove thinking about, you know,
designing things that you know, where I belong.
To get sufficient traction. It's that we should legitimate
to turn on a fee. I want you to propose to turn on
the fee but I think that's not even the case at the moment.
I hope it answers. I went a bit far but I hope it
answers the question. I don't need answers the
question so I actually I also see the stickiness of defy
applications. I think it's, it's really
difficult topic. So what actually makes something
sticky. Clearly, it's not just the best
price or the best security. Artie.
It's kind of like it's user Behavior question, and it's not
100% clear to me. What?
Exactly, actually entails the stickiness.
Yeah, I think there's a lot of know, it all comes back to trust
at some point, which is a bit weird, but that's how it is.
And I do think the example of compound and IVs is a good
example. Like I literally talking to
users, I literally had many calls with people saying, hey,
I'm never going to put a penny on compounds and I'm like, okay.
I mean company has been here for a long time, but, and in, you
know, it's the network effect here is, is, is really playing a
role. I think it is is Major in terms
of, you know, how to retain users.
And also, there are some products well, by Design because
you have more volume. Your products is working better.
It's just the case of curve, in that case, So tell us about the
roadmap and what's coming for more fo.
I know that a lot of this is governed through governance, but
what are you most excited about? Yes.
I think like, you know, everything that will will be
decided would be decided through governance and will be and will
be voting excetera when it comes to more for labs and the
research that we're doing on Landing in general, I would say
like we've been thinking a lot about what makes sense, what
does not make sense? Then sin in the centralized
landing and I'm going to disappoint you a little bit but
as of now we prefer, you know, keeping things close to the
chest for the moment in the sense that we really like to
release things that we are, very sure that they're very neat and
clean at least scientifically so we'd rather, you know, not tease
anything for six months. And then really is a big paper
that we've been working on for more than a year rather than Can
you know try to figure out road maps, Etc, because it's a
constantly evolving space. I'm quite doubtful about road
maps in general. I think you know we are a team
of 20 a bit more than 20 were mostly researchers.
So what we're doing is research and what I can said oh is that
so far? We have not something
sufficiently cleans and and that we're convinced self, 222 teased
or really significant the public and also I Have the team of
researchers that that I really, you know, firmly against the
fact that we should tease this kind of things because for them
it's science and that we should not be teasing science and I
respect that a lot. So I comply to the standards of
the company and I just don't teach.
Okay. Then maybe let me kind of zoom
out a bit. What are your personal hopes for
the ecosystem for 2023? So my personal hopes are
rationalizing. So a lot more defy, think 2022,
and the events, you know, are grim.
And you know, I obviously I don't wish this would have
happens to a lot of people that suffered from it, but on the
other hands it's it has good aspects in the sense that we are
rationalizing. The mechanisms were designing.
I think a lot of time has been lost.
In talking design, what we should have focused on
mechanisms designed, for example, that's a personal take,
not the to take of more flowers with I think like we've seen
mechanisms that are impressively relying on target incentives,
that inerrancy do not create value.
And I'm hoping that 2023 is going to once and for all, you
know, at least largely diminish, the impact of those.
There's this mechanisms in in this space and how, you know,
How talents are sometimes, you know, working on those designs,
what they could be working on more, some some, you know, more
interesting. Primitives, very simple.
So I think this is my first hope.
I also think that this is the perfect cure for building.
I'm very excited about what's going on.
Like, I took two teams and that all building something very
exciting. Like, I'm really excited to see
like the the different announcements on Twitter that
are going to be made in the next few months.
And I would say, My Last Hope is that we regulations.
Do not say you know, too fast decisions on the topic of defy.
I think one very important key thing for 2023 is that they take
the stance of, you know, regulating apps rather than
protocols. It's a very deep, you know, I
think this is the way they should behave and if it is the
don't again personal take that you did not.
I feel like this could endanger largely the system.
And finally, I hope for more institutional, you know,
starting playing around defy. This does not like a good start
for 2023 because like with the FX heavens and everything people
do not feel, you know, inclined to get into D Phi again and it's
soon. But I'm hoping that with, you
know, cleaner mechanisms no protocols.
That I have been sufficient, trust like em, especially
thinking of the nurses. Say, for example, the safe now.
So A is I think once we have, you know, sufficiently
battle-tested Primitives like this or you wanna swap, we can
start thinking about onboarding, like the next order of magnitude
of Futures. And I'm really hoping one of
those companies, you know, go big and some on somebody's to
actually connect us to the rest of the world.
And yeah I have a lot of Hope in this industry leaders and I hope
that more for will also you know be part of those very soon which
is it is in a greater way to do so.
Much cooler. Thank you so much for coming on
for that was very interesting. Yeah, definitely I think
probably one of the most interesting and you know in
depth first guest I've ever been in.
So is a pleasure sharing that moment with you guys.
Hmm thanks Paul. Thank you for joining us on this
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