MIP 102 - Rewards Update Proposal

Governance
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In recent months, the Morpho Association has significantly reduced the number of MORPHO tokens distributed to Morpho markets. While Morpho’s total deposits have decreased from their peak of $6.5B in late January 2025, this decline is primarily due to the overall decrease in crypto market capitalization during this period.

Overall, the total deposits in terms of assets have remained relatively stable, indicating sticky liquidity throughout this period.

Therefore, the Morpho Association proposes reallocating the current (already modest) MORPHO rewards from all markets specifically to markets using USDC, USDT, or WETH as loan assets, slightly increasing rewards for these markets.

The reasoning behind this proposal is twofold:

  • Allocate more rewards toward assets that generate most of Morpho’s volume: more than 85% of loans receiving MORPHO rewards are denominated in these assets (excluding DAI as a loan asset). This will drive more active loans per MORPHO token spent.
  • Maintain Morpho’s competitive edge in markets with the most demand by incentivizing users while staying within the current budget.

Based on this analysis, we propose the following actions:

  • Set the rewards rate to 0 for markets with loan assets other than USDC, USDT, and WETH. This will free up $1.5M worth of MORPHO tokens annually for reallocation to USDC, USDT, and WETH markets.
  • Increase r0 by 20% to offset the reduction in other markets.
  • Set rewards multipliers to 1 for USDC and USDT (maintaining the current stablecoin multiplier) and 0.5 for WETH (maintaining the current ETH multiplier)
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We agree with this proposal.

Concentrating incentives into a smaller number of pools enables higher returns per market, strengthening the attractiveness of Morpho for users. While Morpho’s handling of long-tail assets certainly provides differentiation, we believe that focusing on core markets is strategically beneficial for maximizing influence within the lending protocol landscape.

That said, upon reviewing market data, we observed that assets such as wstETH and wBTC, although smaller compared to USDC, USDT, and WETH, still represent significant lending volumes. Could you clarify the rationale behind excluding these assets from the incentivization?

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Reallocating rewards toward USDC, USDT and WETH makes total sense! Those markets already drive the bulk of volume.

That said, setting rewards to zero for all other loan assets..could that kill activity in long-tail markets entirely? Even a minimal drip 0.1x might keep those ecosystems alive without straining budget. Worth considering?

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