# Proposal: Enable LST-Native Asset Lending Markets on World Chain (Conditional on LST Infrastructure)

**URL:** https://forum.morpho.org/t/proposal-enable-lst-native-asset-lending-markets-on-world-chain-conditional-on-lst-infrastructure/2057
**Category:** Governance
**Created:** [October 25, 2025, 2:15am UTC](https://forum.morpho.org/t/proposal-enable-lst-native-asset-lending-markets-on-world-chain-conditional-on-lst-infrastructure/2057 "2025-10-25T02:15:45Z")
**Posts on this page:** 1
**Page:** 1

<div class="post-metadata">

### Author: ![myoshida2](https://avatars.discourse-cdn.com/v4/letter/m/9de053/32.png) [@myoshida2](https://forum.morpho.org/u/myoshida2)
#### Post date: [October 25, 2025, 2:15am UTC](https://forum.morpho.org/t/proposal-enable-lst-native-asset-lending-markets-on-world-chain-conditional-on-lst-infrastructure/2057/1 "2025-10-25T02:15:45Z")

</div>

**TL;DR** : Traditional WLD→USDC borrowing is structurally risky. LST→WLD loops (when available) would be 10x safer due to price correlation. Morpho already proved this model with stETH/ETH markets. Should Morpho prepare to extend this to World Chain when LST infrastructure emerges?

_Is LST market readiness a priority for World Chain expansion?_

=====

## Current Problem: Uncorrelated Assets Create Unnecessary Risk

World Chain users borrowing against WLD collateral face a structural disadvantage. The only available pair— **WLD → USDC** —creates asymmetric liquidation exposure:

- **30% WLD price drop** → Liquidation
- **USDC debt remains stable** → Zero correlation
- **Result** : Predictable losses during volatility

This limits sophisticated users from accessing leverage strategies that are standard on Ethereum, despite World Chain’s growing ecosystem.

## Proposed Solution: LST/Native Asset Markets (When Available)

**If liquid staking infrastructure launches for WLD on World Chain** , Morpho could enable a fundamentally safer lending primitive: **WLD LST ⟷ WLD borrow loops**.

The mechanism is straightforward:

- **Deposit stWLD** (or equivalent LST earning ~5% staking yield)
- **Borrow WLD** at high LTV (90-95%)
- **Restake** to amplify returns
- **Health factor remains stable** because both assets track WLD price

**Why this is safer** :

| Market Scenario | Traditional (WLD→USDC) | LST Loop (stWLD→WLD) |
| --- | --- | --- |
| **WLD -30%** | Collateral -30%, Debt 0% = ⚠ Liquidation | Collateral -30%, Debt -30% = ✅ Stable |
| **WLD +50%** | Collateral +50%, Debt 0% = Can’t capture upside | Both rise = Maintain leverage |
| **Liquidation Risk** | High (directional exposure) | Low (correlation ~0.99) |

## Precedent: Ethereum’s LST Markets

Morpho’s stETH/ETH markets already demonstrate this model’s success, offering LTVs up to 98% compared to Aave’s 90%, with significantly lower liquidation rates. Lido incentivized these markets specifically because Morpho Blue’s isolated market design allows for higher capital efficiency and immutable, always-available liquidity.

The infrastructure exists. The question is whether Morpho will extend this proven model to World Chain when LST protocols emerge.

## Technical Specifications

**Market Parameters (Initial Conservative Approach)**:

- **Collateral** : WLD LST (stWLD, wldLST, or equivalent)
- **Loan Asset** : WLD (native)
- **LLTV** : 90-94% (can increase after stability testing)
- **Oracle** : LST/WLD exchange rate (Chainlink or protocol-native)
- **Liquidation Penalty** : 2-5% (lower than uncorrelated pairs)

**Risk Profile** :

- **Correlation Factor** : \>0.95 (both assets track WLD price)
- **Primary Risk** : LST depeg events (not price volatility)
- **Mitigation** : Start with established LST protocols, monitor depeg history

**Capital Efficiency Gains** :

- Traditional WLD→USDC: ~75% LTV ceiling (risk-adjusted)
- LST→WLD: 90-95% LTV sustainable (correlation safety)
- **Result** : 20-25% more capital efficiency for borrowers

## Business Case for Morpho

**1. Early Positioning on High-Growth Chain**  
Morpho’s exchange partnerships generated over $1 billion in loan originations. World Chain, with Worldcoin’s global distribution, represents similar scale potential—but only if the right infrastructure exists.

**2. Lower Risk = Better Economics**  
Correlated asset lending offers:

- **\<2% liquidation rates** (vs 5-10% for uncorrelated)
- **Reduced bad debt exposure**
- **Higher sustainable LTVs**

For Morpho, this means more predictable risk and less liquidation overhead.

**3. Competitive Moat**  
Morpho Blue’s permissionless market creation and immutable design allow faster LST support than governance-heavy protocols. If Morpho is ready when World Chain LSTs launch, it captures first-mover advantage before Aave/Compound adapt.

## Conditional Dependency: LST Infrastructure

This proposal assumes **World Chain will eventually have liquid staking infrastructure**. Whether through:

- Native Worldcoin LST protocol
- Cross-chain LST bridges (Lido, Rocket Pool expansions)
- New World Chain-native staking derivatives

The timeline is uncertain, but the pattern is clear: every major PoS chain develops LST infrastructure. Morpho should be positioned to support it when it arrives.

## Open Questions

1. **Readiness** : Should Morpho proactively prepare LST market templates for World Chain deployment?
2. **Risk Parameters** : What initial LTVs are appropriate for new LST markets? (Ethereum started conservatively at 90%)
3. **Oracle Strategy** : Can stETH oracle architecture be adapted for WLD LSTs, or are custom solutions needed?
4. **Partnership** : Should Morpho engage with World Chain LST developers early to ensure optimal integration?