Inviting the Morpho Community to Discuss Transferability

[MorphoAssociation]

Introduction

On July 15, 2022, the Morpho Association deployed the MORPHO token as a non-transferable asset. Non-transferability enabled the Morpho DAO to grow the Morpho Protocol and allow users and contributors aligned with Morpho’s long-term vision to gain ownership of the network—a crucial aspect of Morpho’s mission to transform financial infrastructure into a public good.

Since then, Morpho’s network ownership has grown significantly with a considerable amount of MORPHO distributed to users, strategic partners, risk curators, and more. Currently, 2,000 wallets hold MORPHO, excluding wallets that have not claimed their rewards or vested MORPHO.

Source: Dune Analytics

At the same time, the number of active contributors has grown substantially. Morpho now has over 20 third-party front-ends, applications, and products that enable users to interact with the Morpho Protocol, including DeFi Saver, Superform, SummerFi, Instadapp, and Contango. Additionally, multiple independent operators also contribute to Morpho’s adoption by curating Morpho Vaults. Together, these front-ends, products, and curators make unique contributions that continue to add value to the Morpho Protocol.

However, to further advance Morpho’s mission of making financial infrastructure a public good; ownership and governance of the network must be accessible to everyone. For this to be possible, the MORPHO token would need to become transferable.

As such, the Morpho Association invites the Morpho community to discuss:

1. Whether it’s an appropriate time to make the MORPHO token transferable.
2. If not, what milestones related to network growth or ownership need to be reached before considering it?
3. Ideas and solutions to reach these milestones.

The Morpho Association will consolidate and organize the community’s feedback and suggestions for review and consideration.

Network Growth & Ownership Initiatives

There have been several initiatives to grow Morpho’s network and expand its ownership.

Deploying on a Layer 2 (L2) Blockchain

Historically, all versions of the Morpho Protocol were only deployed on Ethereum. However, in June 2024, the Morpho’s network expanded when the latest version of the protocol was deployed on Base, a low-cost Ethereum L2 incubated by Coinbase. This allowed the Morpho Protocol to become more accessible to every day users. Since then, the number of users — represented by unique wallet addresses — has seen significant growth from 8,600 to 48,000.

Source: Dune Analytics

• Ethereum: All unique addresses interreacting with Morpho and Morpho Vaults on Ethereum.
• Base: All unique addresses interreacting with Morpho and Morpho Vaults on Base.
• Optimizers: All unique addresses interacting with Morpho’s AaveV2, AaveV3 and CompoundV2 Optimizers.

User Rewards

The Morpho DAO has implemented a rewards system to expand the number of network owners by distributing MORPHO tokens to users of the Morpho Protocol. Recently, the Morpho DAO introduced a scalable rewards model to improve how MORPHO is distributed. Rewards are distributed to users on Ethereum and Base.

• Current: Approximately 4.2% of the total supply has been distributed to users.
• Future: Rewards will continue to be distributed using the scalable rewards model until the Morpho DAO votes to change it.

Risk Curation

One of the key differentiators of Morpho’s latest version of the protocol is how it has created an open marketplace for risk curation. Morpho’s permissionless infrastructure enables third-party entities to curate vaults that attract deposits and drive the growth of the Morpho protocol.

Currently, the Morpho ecosystem includes multiple risk curators, such as Gauntlet, Steakhouse Financial, Block Analitica, B.Protocol, RE7 Labs, MEV Capital, Leadblock, and LlamaRisk.

There are now over 50 different Morpho Vaults curated by these third-parties which at the highest point, contributed approximately $800 million in total supply to the Morpho Protocol, significantly boosting overall network usage by facilitating borrowing demand.

Total supply via Morpho Vaults on Ethereum

Morpho Olympics

The Morpho Olympics is a program implemented by the Morpho DAO to strategically align and reward risk curators who create value for the Morpho Protocol.

As mentioned above, risk curators are external, independent teams responsible for curating Morpho Vaults, where users deposit funds to earn interest from over-collateralized lending on Morpho.

Up to 10 million MORPHO tokens (1% of total supply) have been allocated to this program and are distributed quarterly based on the total supply in their vaults. The first distribution can be found here.

Private Sales

27.5% of MORPHO token’s total supply has been distributed via private sale to over 200 strategic partners who contribute to and vote on Morpho’s future.

• 2022 Sale
• 2024 Sale

Further Initiatives

The Morpho DAO reserve still holds a substantial amount (35.7%) of MORPHO tokens. There are various ways the Morpho DAO can further the mission of making the financial infrastructure a public good beyond what has already been done. The Morpho Association invites the community to propose ideas to grow Morpho’s network and expand its ownership, such as boosted rewards campaigns, airdrops, grant programs, or other methods.

Next Steps

1. The Morpho community to discuss whether or not MORPHO should be made transferable.
2. The community to offer proposals on token transferability and/or solutions to enhance network growth and ownership.
3. The Morpho Association will consolidate and organize the community’s feedback and suggestions for review and consideration.

Appendix: Current Distribution

As of August 2024, the MORPHO token distribution is as follows:

Note that Strategic Partners are entities allocated MORPHO tokens in exchange for providing support—monetary or otherwise—to the Morpho Protocol. This category includes entities involved in the private sales mentioned above and those previously labelled as Investors.

[Hubert]

This is amazing news!
Alongside transferrability, having a volontary locking mechanism (eg ve model), would be great to manage flows and concentrate value in the token, while also adopting a battle tested mechanism from a regulatory standpoint that still allows bringing value to holders.

[prevert]

First of all, congrats to the team for the outstanding achievements so far. The concept of Morpho Blue and MetaMorpho was a real breakthrough in the lending space and we now see several lending protocols getting inspiration from this model.

Let me express a few opinions about the present situations and what directions should be taken next.

General vision. Although this expression is often overused and misused by other lending protocols, my general vision for Morpho is the Uniswap of lending. This implies making access to vault curation more open. There are currently a few curators who share the TVL, which means not enough competition to attract TVL, or incentives to innovate and possibly too high fee compensation relative to the work of curating markets. Are fee rates of 5, 8 or 10% legitimate regarding the work of curation? Let the market decide by promoting more competition between curators.

As in Uniswap, build a simple interface allowing users to create vaults and decentralize the EARN interface. Lenders should select vaults a similar way liquidity providers choose a pool to put their liquidity in or investors trade tokens. This implies dropping or at least lowering the minimum TVL requirement to access the UI.

All defi protocols create a market in Uniswap or Curve to make liquid their tokens. Likewise, all defi protocols should find convenient to create by defaut a market for their tokens in Morpho. This means a lot of BD and an overhaul of the current UI, giving more visibility to individual markets. This also implies more initiatives to assess the riskiness of vaults and individual markets.

• Fee switch. Postponing the application of a fee rate is generally a sound policy to bootstrap the markets. But, in the case of Morpho, a fee is already applied by curators. If Morpho would be to switch the fee in the present situation I would recommend negotiating with curators so that the total fee rate doesn’t increase.

• Incentives. Continue to incentivize markets but improve the current system. Distributing a constant fee rate to all markets doesn’t maximize TVL as it fails to take into account differences in native APRs, TVLs and supply elasticities (see [Incentives system for isolated lending markets - HackMD](Incentives system) for a framework). This also applies to the fee rate chosen by Morpho in the future, which should take into accounts specificities of each market.

• Community. To decentralize the protocol, it is crucial to engage a broader community. We don’t see enough discussions about the roadmap in the Discord and the forum.

• Transferability. Before making the token exchangeable, retail investors and outsiders should be given more information to correctly value the token, including:
  – the roadmap. Is a V3 in the work and if so, what it is?
  – vesting. Are tokens held by the team and investors still vested and for how much? What’s the remaining schedule for the unlocks if there is one?

[antonttc]

As a builder on Morpho Blue (I built an alternative UI monarchlend.xyz to support direct supply & borrow on MorphoBlue markets), I think unlocking the transferability of token could be a huge step forward for bringing more devs into the ecosystem

Once enabled, the Morpho DAO can start planning grant programs (can be done by streaming tokens to grantees with tools like Sablier), which is a very important and direct way to incentivise builders. With competitors like Euler V2 launching soon, it might be a good time to consider this.

For me a big downside of unlocking transferability of any token is noice. Once there’s a “market price” to the token abd price is down, everyone becomes less excited about the project, and their feedback may become biased. This might affect the product in the long term if the core team doesn’t have a concrete roadmap. Judging from the outside, I think the core team is ready to take this leap, face a higher risk in return for a future with much higher potential of Morpho.

[patmayr]

Hi team - Thanks for kickstarting this conversation. I think it makes sense to have a discussion around token transferability. Before weighing in on whether we think it’s a good time to make the token transferrable, it would be great to get your view on these questions:

1. With around 2,000 tokenholders, Morpho is currently far behind some of the other leading DeFi protocols. Just looking at the number of tokenholders in other lending protocols we get:

   • Aave = 170k
   • Maker = 102k
   • Compound = 220k

   However, up until now, users could only earn tokens by lending, borrowing, or acting as a risk curator on Morpho. Post transferability, what types of holders are you looking to attract to grow the holder base that couldn’t get exposure until now? How will you support their participation in the network, eg. governance models, on-chain liquidity, etc?

2. The Base deployment has now reached almost 40k unique users. Given this deployment is also incentivized with MORPHO emissions, do most of these users hold unclaimed tokens? Or is there another reason they are not included in token-holder count?

3. It would be helpful to understand better the core upcoming growth initiatives from Morpho DAO and how the token transferability ties into enabling these.

[IJ0x]

Thanks for starting this conversation.
A related topic to think through here would also be where would the token be tradable once it is transferable to ensure healthy price discovery…
Would transferability be accompanied by listing on CEX/DEXs, engaging market makers as well as incentives for DEX liquidity providers.

[valentin]

Thanks for initiating the discussion about this!

In my opinion there should be a clear plan how the MORPHO token benefits from the growth of the protocol. The simplest mechanism is some kind of a fee switch, which goes back to the token. The current situation is that the token is used for incentivizing usage, which will lead to a lot of sell pressure, as many of the users will chose to sell the token. There should be a clear idea, why holding the token long term is beneficial.

If I have to do a quick brainstorming, some kind of a fee switch on the Earn vaults could make sense. From there the collected fees could be used for a buyback of MORPHO tokens, which are distributed to a staking pool which utilizes some ve- staking mechanism. In my opinion the ve- staking mechanism that Curve created is a good and battle tested system.

[Super_Chameau]

Hi @MorphoAssociation : my two cents:

• yes, it is time to have MORPHO token transferable, but only if by holding it, you can get a revenue. I propose to have the same model than JLP token (from Jupiter aggregator on Soalan): all fees from the protocol are used to buy back the token on the market increasing therefore its value. The advantage of doing so is that you avoid tax issues related to staking and you do not need to stake the token (just holding it in your wallet is enough).
• you need a clear strategy to provide liquidity on Uni v3 for the morpho token in a USDC-MORPHO pool and a ETH-MORPHO pool. Providing liquidity in a Uni v3 pool is equivalent to having a position with an option payoff. Please DM me if you want to talk about that in details, I can help you guys designing a strategy to provide liquidity on Uni V3 where you can then harvest MORPHO tokens and USDC/ETH tokens by minimizing impermanent loss.

[just_use_morpho]

Excited to see Morpho advancing with the enablement of token transferability. However, I have a couple of questions before this feature is implemented:

• Are there any plans to improve DEX liquidity for Morpho tokens? A well-defined strategy for DEX and CEX listings would help increase the value for token holders and enhance the effectiveness of current incentive programs. The value of these incentives diminishes when users are unable to redeem them.

• What is the long-term strategy to create utility for the Morpho token beyond governance? Introducing mechanisms like fee earning or staking could enhance the token’s value for holders and incentivize its use more effectively.

Agree that enabling transferability would be an excellent opportunity for Morpho to consider establishing a grant program.

[Steakhouse]

As a curator of a Morpho vault, Steakhouse Financial fully supports the move to make the MORPHO token transferable. The progression toward transferability is not only a logical next step in Morpho’s evolution but also crucial for fulfilling the protocol’s mission of transforming financial infrastructure into a public good.

1. Enhancing Decentralization and Governance Transferability is a vital component of decentralizing governance. By allowing the token to be traded freely, it will enable a wider range of participants to engage with and contribute to the Morpho ecosystem. This broader distribution will strengthen the diversity and resilience of Morpho’s governance, ensuring that decision-making is more representative of the community’s interests. As we’ve seen in other DeFi projects, decentralization through token transferability can foster a more robust and engaged community, ultimately driving better governance outcomes.

2. Incentivizing Long-Term Commitment Introducing transferability could enhance the alignment between token holders and the long-term vision of Morpho. Currently, MORPHO holders are limited in how they can realize the value of their contributions. Transferability would not only reward early supporters but also attract new participants who believe in the protocol’s potential. These market-driven dynamics could help to attract strategic partners and investors who are aligned with the long-term success of the protocol, thereby further accelerating its growth.

3. Boosting Liquidity and Economic Activity Transferability is essential for creating a liquid market for the MORPHO token, which in turn can lead to increased economic activity within the ecosystem. A liquid token provides a clearer signal of the protocol’s value and can be used as collateral in various DeFi applications, further integrating Morpho into the broader DeFi landscape. This increased utility can encourage more users to participate in the network, driving adoption and the overall growth of the Morpho Protocol.

4. Expanding Network Effects By making the token transferable, Morpho can leverage network effects more effectively. As the token becomes tradeable, it will likely appear on various exchanges and DeFi platforms, increasing its visibility and accessibility. This can lead to an influx of new users, developers, and projects that want to build on or interact with the Morpho Protocol, further expanding its ecosystem and solidifying its place as a foundational element of decentralized finance.

5. Aligning with Market Standards Finally, transferability aligns Morpho with industry standards within the DeFi space. Most successful DeFi protocols have embraced token transferability as a means to empower their communities and scale their networks. By following this well-trodden path, Morpho can remain competitive and continue to innovate, ensuring it maintains its position at the forefront of decentralized finance.

In conclusion, making the MORPHO token transferable is not just a step forward—it’s a necessary evolution. It will enhance decentralization, incentivize long-term commitment, boost liquidity, expand network effects, and align Morpho with industry standards. Steakhouse Financial strongly advocates for this transition and is eager to support the community in realizing the full potential of the Morpho Protocol.

[PaulFrambot]

It might be worth you sharing more details on this so the Morpho DAO can consider it. I see @valentin mentioned a similar idea.

[PaulFrambot]

Thank you for this very complete note!

This implies making access to vault curation more open. There are currently a few curators who share the TVL, which means not enough competition to attract TVL, or incentives to innovate and possibly too high fee compensation relative to the work of curating markets. Are fee rates of 5, 8 or 10% legitimate regarding the work of curation? Let the market decide by promoting more competition between curators.

My quick answer to this (since it is a bit off the topic) would be that yes competition is good, but we also have to be cautious of the profitability of risk managers in the early stages of the network. As vault managers generate profit, they can reinvest in Morpho etc. Long term, free market dynamics are excellent.

overhaul of the current UI, giving more visibility to individual markets

We are constantly improving the UI and are building the next version (fully revamping everything), with the objective of bringing a better UX but also better differentiate vault opportunities.

Fee switch.

The fee switch conversation is a very important one and we should probably open a separate topic (feel free to btw!). My 2cents would be that:

• Vault managers’ profitability should be a much higher priority
• Morpho’s fee switch is directly tight to how decentralized the user base is. The more decentralized the set of users is, the more robust are network effects are etc. Imo, we are still very far away from this but I don’t know the numbers. Maybe we could conduct a study on those dynamics as Uniswap did with Gauntlet.
• There are a lot of legal considerations around fees. We want to make sure to get this right and invest a lot in the legal side of things.

Incentives

thanks for sharing, will send to the reward committee

Community

100% agree. How do you think we could engage with Morpho’s community? What about ownership?

Transferability

The token takes its value from the fee switch which is tight to Morpho’s network effect. Value creation is decentralized and hence anyone is able to assess it. Anyone could build a future version of Morpho.
Re: vesting, everything is open on the chain, but we are working on visualisations. Will add them to the docs as soon as we are ready. Thanks for flagging!

[PaulFrambot]

@antonttc

Once enabled, the Morpho DAO can start planning grant programs (can be done by streaming tokens to grantees with tools like Sablier)

I think this is a great idea that should definitely be considered! I guess we just need someone to structure that. Do you know who could be relevant?

[PaulFrambot]

With around 2,000 tokenholders, Morpho is currently far behind some of the other leading DeFi protocols.

I agree and this is definitely a metric we should focus on. That said, it is hard to say if the holders of other defi projects are actually different or if it is entity with a wide number of wallets.
Also, 2000 holders before the token is live is actually a lot compared to other projects.

eg. governance models

This is also an important point, we need to do more work on govenrance operations and stack. Happy to hear suggestions if a third party/contirbutor could help with this.

do most of these users hold unclaimed tokens

Since the token is not transferable, it can’t be bridged and hence users can’t see if they

It would be helpful to understand better the core upcoming growth initiatives from Morpho DAO and how the token transferability ties into enabling these.

Morpho Labs has been discussing with multiple key partners that could benefit from MORPHO grants, but we are also very open to feedback here!

[PaulFrambot]

@IJ0x

Would transferability be accompanied by listing on CEX/DEXs, engaging market makers as well as incentives for DEX liquidity providers.

The Morpho Association is capable of engaging with market makers and CEXes. Re: DEXes I don’t really know what could be the best strategy. Do you have a suggestion?

[PaulFrambot]

Thanks for sharing @valentin !

I am personally against activating fees on Earn vaults. Imo vaults should be a commodity and if we turn on a fee, then a vault manager could simply fork it, remove the fee switch and redeploy.

I believe the most scalable value creation for Morpho is the network effect at the immutable primitive level. Yes users could fork the Morpho markets, but they can’t fork the state (lenders and borrowers coming together at one spot).

as for veTokens, @Hubert had a similar idea. The system is battle tested,but to me the economics on how this benefit the protocol long term are unclear to me.

[PaulFrambot]

Thanks for the feedback

you need a clear strategy to provide liquidity on Uni v3
Yes, this as been mentioned by @IJ0x too. I am not sure what is the best way to move forward with this tbh. Feel free to propose what you have in mind!

[PaulFrambot]

@just_use_morpho

• Are there any plans to improve DEX liquidity for Morpho tokens? A well-defined strategy for DEX and CEX listings would help increase the value for token holders and enhance the effectiveness of current incentive programs. The value of these incentives diminishes when users are unable to redeem them.

The Morpho Association is capable of engaging with CEXes and market makers, but I don’t think we are clear on a potential DEX strategy. Any suggestions?

Agree that enabling transferability would be an excellent opportunity for Morpho to consider establishing a grant program.

Also agree with this, as mentioned by @antonttc. Any idea of how we could put this in place?

[FredEth]

@MorphoAssociation

to further advance Morpho’s mission of making financial infrastructure a public good; ownership and governance of the network must be accessible to everyone. For this to be possible, the MORPHO token would need to become transferable.

Hi, I am not against Morpho token transferability (I just dont know when the best time is), but I dont really understand why non transferability prevents Morpho protocol to become a public good. TCIP/IP is a public good and there were no token … ? thanks

[PaulFrambot]

Good question. Morpho’s mission is to make financial infrastructure a public good, as stated here.

A public good is a resource accessible to all without diminishing its availability. Traditionally, governments provide public goods through taxes (e.g., roads, parks). However, other entities—such as individuals, private companies, or DAOs—can also create public goods.

Regarding internet protocols, they were primarily funded by governments/army, which are themselves funded through taxes. Since their inception, we haven’t seen many groundbreaking new protocol developments. Tokens offer an innovative way to own a share of the Morpho network and fund its development and future iterations. Ethereum is a great example of a public good (except maybe for gas fees but will eventually be minor imo) that has a token.