Age3-Epoch1 gauges optimized distribution


Morpho Labs proposes its optimized distribution for the gauge vote of the 1st Epoch of Age 3.

Morpho-Aave Morpho-Compound
Weight 9.27% 2.89% 16.32% 6.70% 37.29% 0.52% 6.85% 1.67% 3.80% 5.13% 2.54% 6.81% 0.13% 0.06%


The Age 3 rewards distribution will be determined through the recently voted Morpho gauges. Before each epoch, $MORPHO holders will be able to vote the rewards distribution between markets of Morpho-Compound and Morpho-Aave. All the details about it are available in the associated forum post and associated documentation section. This system has been proposed by Morpho Labs to decentralize the rewards distribution process.

However, there are many unknowns, results are difficult to predict and there is no guarantee of the efficiency of the rewards distribution. This is especially true for the first iterations of the gauges. That’s why Morpho Labs worked on an optimized distribution, that we are going to share and explain here. Members of the core team are probably going to vote with this distribution, and anyone else without any particular opinion on the vote can follow this distribution.


Given n markets \Theta = \{\theta_1, ..., \theta_n\}, we want to determine a set of weights \Omega = \{\omega_1, ..., \omega_n\}\in\mathbb R^+ with \sum_i \omega_i = 1 that maximizes the total volumes on Morpho.

We consider each market independently of whether it is from Morpho-Compound or Morpho-Aave. First and foremost, we list the concepts that come into play in the efficiency of the reward distribution: the growth potential, and the use case of the markets. Then, we quantify these market forces into their corresponding indexes, and gather the results into one weight per market.

Growth potential

Rewards are a great way to accelerate the migration of liquidity from other lenders to Morpho. So, we want to rewards the markets that have the biggest growth potential.

In a first approach, we take Aave and Compound as references for the growth potential of respectively Morpho-Aave and Morpho-Compound. Then one way to quantify the growth potential of a market is simply to look at how much liquidity is on Compound and Aave. We expose the following “growth potential index”:

g_{\theta_0}= \frac{ S^{Pool}_{\theta_0} +B^{Pool}_{\theta_0} } { \sum_\theta \left(S^{Pool}_\theta +B^{Pool}_\theta \right) }

where S_\theta^{Pool} (resp. B_\theta^{Pool}) is the total supply (resp. total borrow) on the market \theta on Compound, for a market of Morpho-Compound, or on Aave, for a market of Morpho-Aave.

Use cases

Morpho’s use case is to supply and borrow assets while being matched peer-to-peer, thus enjoying better rates than on the underlying pool. Rewarding the markets that allow this can also be a great way to bootstrap Morpho’s growth, by highlighting its use case.

So one way to do that can be to look at how much peer-to-peer volume is there on each market, if the peer-to-peer is activated on this market. We come up with the following “use case index”:

u_{\theta_0}=\delta^{P2P}_{\theta_0}\times\frac{P_{\theta_0}}{\sum_{\theta}\left(\delta^{P2P}_\theta\times P_\theta\right)}

Where P_\theta is the volume matched peer-to-peer on the market \theta on Morpho, and:

\delta^{P2P}_\theta= \begin{cases} 1 & \text{if the peer-to-peer is activated on the market $\theta$}\\ 0 & \text{otherwise} \end{cases}


In order to take into account both indexes, we build the weight by taking an average of the “growth potential index” and the “use case index”:

w_\theta=\frac{g_\theta + u_\theta}{2}


We present here the results for the 1st Epoch of Age 3. The data to do the computations has been taken at block 16222182 (Dec 19, 2022).

Growth potential

Use case


We compute the weights of the different markets by taking the average of the “growth potential index” and the “use case index”.

In the previous distribution system (for age 1 and 2), the rewards were first split between Morpho-Aave and Morpho-Compound, and then distributed among the markets according to their size. There was therefore no predetermined fixed weight for the markets.

Taking the current size of the markets and the current distribution of rewards (50%-50% during Age 2 Epoch 3), one can however calculate a current implicit weight of rewards. The graph below shows a comparison between these weights and those calculated with the new approach:

See the summary for the values in detail.

The weights indicate the proportion of rewards allocated to each market. These are then distributed between suppliers and borrowers in proportion to their contribution to the market. Thus, the greater the volume of a market, the more diluted the rewards are. The following graph shows the number of rewards allocated to a market during epoch 1 of age 3 (A3E1), divided by the current volume (supply + borrow) of that market. This gives an idea of the number of rewards one would receive for one dollar lent or borrowed in that market if the volume remains constant . As previously, we compare with the current state.


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