Considering MORPHO Distribution

Governance
1

Author: Ryan - Research Analyst | Messari
Date: May. 27, 2023

Introduction

The overall goal of this post is to share some data and spur conversation regarding the distribution and voting power of MORPHO wallets/delegates. Since the onset of the protocol, it has been stated that the team believes a progressive approach to decentralization will be one of the keys to the protocol’s success. With Age 4 ending on May 22, 2023, and almost a year since the protocol went live, I wanted to drop some stats on the progress made so far.

Background

At present, obtaining MORPHO tokens requires an active engagement with the Morpho protocol - either through supplying assets or borrowing assets. The utility of the token lies in the governance rights, as one MORPHO is equal to one vote. Additionally, users can delegate their MORPHO to other wallets to vote on their behalf.

The goal of Morpho emissions as mentioned by the team is to bootstrap liquidity and sufficiently decentralize the protocol. Regarding decentralization, here is what was recently said by Morpho Labs member, Paul, on the Morpho governance forum:

“Decentralization: In our vision, a good equilibrium for the control of a DAO is a clear distribution between

  1. Users: owning a share of the network to provide feedback on the product.
  2. Contributors: to keep improving and building based on that feedback + on their technical vision (at least at the beginning)
  3. Investors: to provide capital and guidance and fuel those contributions and ecosystem.”

With this in mind, the focus here is on the delegates/users as the contributors have continued to build as shown by a number of developments, most recently the Morpho-Aave V3 deployment, and we do not have deep insight into the arrangements made with the investors of the protocol.

Tokenholder Analysis

As of May 23, 2023 there were 786 active addresses that held over 1 MORPHO with approximately 2.7% of the total supply distributed to users via emissions. This is excluding the Morpho seed funding wallets. The average balance per wallet was 21,386 and the median balance was 263. The distribution between the top 5-25 wallets was as follows:

  • Top 5 Wallets
    • Controls 6,062,866 MORPHO, 24.35% of the circulating supply
  • Top 10 Wallets
    • Controls 8,375,434 MORPHO, 33.64% of the circulating supply
  • Top 15 Wallets
    • Controls 9,886,779 MORPHO, 39.71% of the circulating supply
  • Top 20 Wallets
    • Controls 11,081,887 MORPHO, 44.51% of the circulating supply
  • Top 25 Wallets
    • Controls 12,017,460 MORPHO, 48.27% of the circulating supply

With that said, following MIP 2, Morpho allows users to delegate their voting power to other individuals or groups. Currently on the General Voting Morpho snapshot page there are 15 delegates.

Although the distribution of MORPHO per wallet appears healthy, the distribution amongst delegates is concentrated to just a few entities. Based on MORPHO emissions as of the end of Age 4, the top delegate controls 29% of the total voting weight, the second delegate controls 27% and the third delegate controls 15%. Comparatively, Aave’s top three delegates control 23%, 9% and 9% of the voting weight.

When considering voter turnout on Morpho Improvement proposals, the concentration of control is even more apparent. For example, MIP 14 received 8.43M votes from 48 voters, but delegate 0x84 accounted for 90% of the total vote. For MIPs 12 and 13, there were 16M and 15M votes total, but delegates 0x84 and 0xf4 accounted for over 89% and 96% of the vote respectively. With this said, it is important to note that most proposals have been agreed upon unanimously, so the concentration of power has not led to one individual vote deciding the outcome of a MIP.

Further Discussion

This post aims to serve as a community update on the current distribution of MORPHO. I encourage other community members to sanity check the work done here, and propose any thoughts or suggestions for Morpho moving forward. With that said, I will present a couple of questions for the community and team.

  1. Should there be a limit on the maximum number of MORPHO a delegate can receive?

1A. As the protocol continues to reward ecosystem participants with MORPHO, perhaps a system that limits the total delegate voting power to a % of the circulating supply would make sense to ecourage decentralization and participation.

  1. What metrics should we consider when thinking about enabling the transferability of MORPHO?

2A. Total tokenholders, total tokenholders over X amount, X amount of MORPHO in circulation, X total value within the protocol, etc…
2B. Should the transferability of the token rely on a utility to be built for MORPHO first?

I’m certain that a multitude of other concepts exist on how to maintain balance in regard to voting power, and I’d be delighted to explore further proposals that the community might bring forward. It’s equally important to assess if any alterations are indeed required, based on the overall communal viewpoint.

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If it is possible to enable links, I have some links/images I would like to include!

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Thank you Ryan for this post! Messari’s engagement in governance forums is highly appreciated, I’ll try to address the different points!

If it is possible to enable links, I have some links/images I would like to include!

To be able to publish links and pictures, you have to become trust level 1, by spending some time in the forums. I manually upgraded you to this status so feel free to edit your post!

With Age 4 ending on May 22, 2023

In case you missed it, Age 5 has started!

we do not have deep insight into the arrangements made with the investors of the protocol

I am sorry this was not clear enough. I tried to clarify distributions in the documentation here. Additional information on investors can be found in this 2nd fundraising announcement or in MIP1.

Based on MORPHO emissions as of the end of Age 4, the top delegate controls 29% of the total voting weight, the second delegate controls 27% and the third delegate controls 15%. Comparatively, Aave’s top three delegates control 23%, 9% and 9% of the voting weight.

This metric is very interesting. Token delegation indeed appears more concentrated in Morpho. Let’s remind nonetheless that the Aave protocol was started 6 years ago while Morpho was started a year and a half ago. A correct and fair decentralization takes time and I expect this concentration to be diluted over the coming years.

Should there be a limit on the maximum number of MORPHO a delegate can receive?

At first sight, this could be interesting, do you have a maximum percentage in mind? Where you thinking about making it sybil resistant?

At first sight, this looks interesting! We will have to look into the specifics of how this can be done technically but Snapshot should easily allow this. Do you have a maximum percentage in mind?

What metrics should we consider when thinking about enabling the transferability of MORPHO?

While three instances of Morpho Optimizers were deployed already, the majority of the work done by the initial team on Morpho is still not public yet. If the token were to be liquid, this would create a large information asymmetry between the initial team/investors and other market participants. This is why we are not in favor of an immediate token launch.

Moreover, we may want to establish robust governance processes (introducing a cap for delegates could be a part of it) before enabling transferability, to avoid events such as what happened with Tornado Cash recently.

I hope this answers/clarifies your questions.

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I appreciate the very thorough response, Paul!

“I tried to clarify distributions in the documentation here 2. Additional information on investors can be found in this 2nd fundraising announcement 1 or in MIP1”

Thank you for the addition of the initial distribution breakdown in the documentation. I think this is extremely helpful and exactly what some community members were looking for!

“At first sight, this could be interesting, do you have a maximum percentage in mind? Were you thinking about making it sybil resistant?”

For a maximum percentage perhaps 15% or 20% of the total circulating supply could be a sufficient cap. The goal is not to be too restrictive to make governance difficult, but to remove the ability for one or two delegates to control over 50% of the voting weight. In terms of sybil resistance, I have not thought of any plausible ideas, although with the token non-transferable I do not think it is as big of an issue at this time.

“If the token were to be liquid, this would create a large information asymmetry between the initial team/investors and other market participants. This is why we are not in favor of an immediate token launch.”

I also agree an imminent token launch would not make sense with still such a small circulating supply. Perhaps as more of the work planned by the Morpho team is made public, we can revisit this idea.

Overall, I thank you for your time to address my questions and I encourage other community members to comment more frequently as well. I look forward to remaining active in the Morpho forums and helping Morpho grow. :butterfly:

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