Inviting the Morpho Community to Discuss Transferability

Governance
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It is high time to enable MORPHO transferability ! The main goals is to
distribute the supply to more holders.

LFG !

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22

There are several potential strategies to build DEX liquidity for the Morpho token. It may be worth issuing an RFP for service providers to bid on liquidity-building, with clear success objectives.

The grants program should be community-led, but will require participation from the Morpho Association and Risk Curators to ensure success. I’d suggest starting with a straightforward process where applicants submit proposals to a grants committee, comprised of community-nominated members such as contributors, the Morpho Association, and Risk Curators. The Uniswap grant program could serve as a useful reference.

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Both of these points make a lot of sense to me!

I agree that a community-led or committee-managed grant program could be a great idea, and Uniswap is a solid benchmark.

Do you suggest having an external entity responsible for the program operations and grant distribution?

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Congrats!! Amazing news.

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A few thoughts on transferability:

With a large portion of supply becoming mobile at one time, significant volatility is to be expected early on. It’s important for users to have an adequate liquidity to transact and support price discovery.

I believe the DAO should strongly consider MORPHO incentives for liquidity providers on Uniswap v3, using a system like Merkl. The Morpho Association can engage with market makers and centralized exchanges to support integrations and liquidity (I’m not an expert on this), but:

  1. Robust onchain liquidity is useful so that users do not need to transfer funds to a CEX if they do not wish to
  2. An open incentives program for liquidity is more in the spirit of decentralization than agreements with a small number of market making firms

My suggestion therefore is that the Morpho Association should communicate with market makers about the terms for providing MORPHO liquidity, and compare this with the result of incentives campaigns using Merkl (I’m sure the team there can provide historical data upon request showing efficacy of $ spent on incentives in producing liquidity depth). Based on the results of these inquiries, the DAO can decide on the amount of resources to allocate to each type of liquidity.

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As a user, primarily of the Morpho Earn product, I support the move to make the MORPHO token transferrable, for many of the same reasons listed above.

To offer something unique to the conversation, I’ll speak from my own long-term holder perspective, where there are pros and cons to both enabling transferability now and later.

Enabling now benefits long term believers in the protocol by allowing them to purchase a stake in the Morpho network at early valuations. Additionally, I speculate that at some point in the future, yield farming strategies in DeFi will be bundled into ETPs, which will bring unbridled liquidity into the space. Morpho’s protocol design is well suited to this future, but only if the MORPHO token can be sold by ETPs for additional yield, as holding speculative tokens inside a yield farming strategy makes very little sense.

On the other hand, enabling transferability later benefits long term users of the protocol by allowing them to accumulate a greater share of the supply purely through using the protocol for a longer period of time. Additionally, there is an opportunity to create immense hype around the protocol and farming tokens if transferability were left disabled until the DeFi space achieves much higher valuations.

A potential downside of enabling later, however, is that Morpho may miss out on opportunities like the ETP scenario I described above, should transferability still be disabled when institutions begin developing those products.

Overall, it seems to me that, from both a holder and protocol perspective, enabling sooner is the safer and potentially more rewarding choice for everyone.

P.S. Just make sure that MORPHO rewards from the Uniform Rewards Program are claimable in the UI well before transferability is enabled!

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Transferability should happen as soon as there is governance ability plus some incentive to lock morpho in governance from the start. Early holders of morpho need a clear well-communicated reason not to dump. Staking incentives or governance incentives?

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Thank you @Fluxty for your comment.

Indeed, at the same time, the token has been there and distributed since June 2022, giving perhaps enough time for those early users to accumulate a stake in the protocol ownership.

I agree with you that this is a requirement, and it will be the case. We’re finalizing the last tests; MORPHO rewards should be claimable by the end of the month.

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There’s been a couple of remarks related to grants.
Probably worthy of its own a separate thread?… :eyes:

There are indeed quite a few interesting grant programs out there in the web3 space to draw inspiration from; we’re lucky that most are building in public and some are kind enough to share their reflections…

Some ideas & suggestions for Morpho:

I think it’s important to start by splitting the topic in 3 stages:

A = Design & implement the grant program.
This will need the input from the core team & a close alignment with the Association to increase the chances of success, but it could already include a few motivated/experienced community members.

→ Key focus: categories/focus areas, evaluation criteria, governance, budget/funding release, timeline/campaigns, forms/dashboard (own tech vs existing tooling)…

B = Run the grant program

This can be open to more participants (depending on program design & scope set during phase A)

C = Review the program & suggest improvements
Ideally a separate group would be in charge for regular reviews.

Plus finding the right level of community involvement along the way.

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31

I look forward to that day coming soon. I like Morpho very much.

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As a depositor and ecosystem member (providing trustless onchain Guardians) Aragon fully supports the move to make the MORPHO token transferable upon proper discovery and strategic alignment on Morpho’s governance. Transferability is an important next step in Morpho’s mission of becoming a battle hardened public good that can stand the test of time.

Jesse Waldon’s, progressive decentralization playbook, outlines 3 key components for success in crypto.

  1. Product Market Fit (PMF)
  2. Community Participation
  3. Sufficient Decentralisation (community ownership)

Written in 2020 at a time when real, trust-minimized, and onchain DAOs were more common, the past 4 years have proven that these 3 requirements hold true more than ever, and there is no short-cut to creating and sustaining them.

My belief upon looking at Morpho’s meteoric rise, is that Morpho has reached PMF far greater than the vast majority of other projects, has a larger community with more aligned incentives than the vast majority of other projects, and would be sufficiently decentralized to begin token transferability. There are ways of making the token transferable while decentralizing permissions, incentive mechanisms, and fee-capture overtime that can be done safely and securely.

I suggest a few steps to confirm this is true and consider setting milestones if needed:

  1. Drive towards increasing the profitability for vault managers, thus increasing the incentives for their continued participation in the Morpho ecosystem. Consider working with vault curators to incentivise their own vaults in an attempt to increase competition, while decreasing the burden on Morpho for this.
  2. Get a temperature check from investors and VC’s on their willingness to participate in governance and/or use tokenomic systems such as a veToken model. Most VC’s, especially US based ones refuse to participate in governance, even in the most severe circumstances, which creates huge risks for projects.
  3. Continue kicking-ass and driving adoption!

Before this takes place defining a decentralisation roadmap will be crucial in ensuring success. Most “DAOs” launch their token without proper checks and balances, onchain governance consideration, nor value capture. This has led to huge drops in token prices, protocols/projects captured by misaligned delegates due to voter apathy, increased regulatory risk, and the inability to build & design what they want due to missed technical standards.

Before token deployment I would recommend:

  1. Define your goal. Morpho has always been an extremely focused team, driving for minimization of dependencies and different types of technical and social debt. I recommend moving forward with the same values and letting the community be empowered by that, without the builders being overburdened by overhead.
  2. Defining what is to be governed, and when! It is okay to move permissions over slowly.
  3. Designing a system that creates long-term incentive alignment over a longer-period of time, while still having some flexibility.
  4. Building a strong social layer that keeps community members informed and engaged when required and for the right reasons.

There are many ways to build the above. Based on my view and participation with Morpho over the last year or longer I would recommend:

  1. A governance overhead minimized approach. Optimistic governance for certain decisions. Starting with an onchain permissioned proposal process. Voters would need to veto. A council can create a proposal. This can be removed over-time.
  2. Use gauges. Gauges are hot again and thus a veToken model can be built along with it. The veToken model was invented by Curve on Aragon and has seen over 44% of their token locked away. Curve was the first, and we’ve learned a lot since their launch. Including ways to make the veToken model more flexible and carrot driven over stick driven. We have 10+ medium to large DAOs, including a large rollup and LRT, in our pipeline currently building with a new veToken design that we will be releasing for everyone in the next few weeks.
    Gauges are another way to decrease governance overhead, create a token sink, drive decision making on incentives by the community, and decrease potential attacks.

In conclusion, making the MORPHO token transferable is a necessary and important evolution. It will enhance decentralization, increase incentivize long-term commitment, and expand network effect, placing Morpho alongside the largest projects in the industry. Aragon fully supports opening token transferability and is here to help Morpho and the community as much as possible to do this successfully.

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33

One thing that came up after discussions is utilizing Oracle Extractable Value. As a lending protocol, integrating OEV is a possible way for getting revenue for the protocol. How to encourage Morpho markets to launch with such oracles is a good question, though. Giving MORPHO rewards and thus boosting the liquidity for the markets integrating OEV is one way IMO.

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Now that Eigen Layer has enabled transferability for $EIGEN, shall we accelerate this discussion?

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probably locking for 1-36 months in exchange for Morpho rewards/governance power/lower performance fees etc

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@PaulFrambot

have you thought of letting the users claim on eth mainnet rather than on base? This would eliminate the need of bridging and simplify the deployment: no new contracts are needed and since the unclaimed tokens are stored only on your api, then you just need to generate the proofs for eth mainnet claim contract…

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I think the MMs have answer to this. Generally it is adding and managing the liquidity

You can also incentivize LPs if you want by for example creating an incentive program on merkl: Merkl or on your venue

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Hey Paul, sure, let me extend a bit my thinking process.

This question of the utility of the token mainly come after the transferability, when we ask ourselves “what’s next?”, notably regarding future emissions of tokens. In the case of MORPHO, emissions are a key factor of the competitiveness of lending through Morpho Blue.

For any decentralised protocol with reward distribution in governance token, to be truly decentralised, the allocation of rewards need to be decentralised as well, so either immutable, or governed by governance (ideally on-chain governance).
As immutable is good in the short term but lacks flexibility in the long term, I don’t believe it is the best option in an ever-evolving market. I therefore believe that the best way would be to have token holders vote on this allocation (which doesn’t mean a portion cannot be allocated to some elected centralised committee able to do deals, or choose strategic development, like what PancakeSwap is doing). Now, this has some side effects (e.g. people buying just to vote and sellling after, etc.), which can be solved by a locking period, like in veTokenomics. I believe 4 years is a bit long, but probably 1 or 2 years is a good locking period as it is shorter than a typical cycle.

That being said, there are also benefits from this locking architecture that go beyond the decentralisation and voting question.
First, this allows to offset a good chunk of emissions as recipients will battle to have inflation directed towards them, they will compete by sending a portion of the value to veMORPHO holders, which would often recompound into MORPHO, hence reducing the effective inflation and the dilution of holding the token.
It’s a way to incentivise external users benefiting from the DAO’s rewards to coincentivise. Looking at other models, notably for DEXs, you can see that those using incentives struggle to get pool creators to co-incentivise, while for DEXs using a veTKN model, you see pool creators de facto coincentivising (through vote incentives) with sometimes more than 90% of the total incentives directed. This is because of the great UX for incentivisors, and the improved UX for users who end up farming only one token which is harmonised through all pools (in Morpho’s case it would be the MORPHO token, like today)

This locking infra is also a way to turn an inflationary model into a value accretive one for long term holders. For example with dummy figures, if 50% of circulating supply is locked, inflation is 10% p.a., and protocols are happy to pay incentive direction 80% of incentives value (1.25x efficiency), then after 1 year, people who don’t lock will be diluted by 10%, but people who locked would have increased their position by 16%, so their real value would have increased by ~6%.

On top of that, veTKN generally have some other utility (boost on MORPHO rewards could be one, or reduced borrowing interest for example).

In the end, the veTKN model is a great battle tested way to give value to users while avoiding any risk of being considered a security.

To conclude, I think the veMORPHO model would be the best way to guarantee the long term decentralisation of the protocol, while fueling its growth, and is the most suitable model for a protocol that aims to be a top 3-5 defi protocol.

Happy to go more in details (notably on why I think the solidly model is not as good).

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Hey Paul,
I tried giving a more detailed view here: Inviting the Morpho Community to Discuss Transferability - #39 by Hubert

Bottom line, it is probably the easiest way to have flexible onchain governance, and it favors the DAO by separating traders from long term holders who then receive the benefits generated by the protocol in an anhanced manner.

It is also a clear non-security model that allows to bring value to the token, and avoid the UNI syndrome.

Finally, it is so well spread that everyone understands it now, and therefore it would require minimal research for users to understand the mechanics.

1 Like