Update on bbETH and Morpho's market state at launch


A short update on Morpho Blue and Flagship ETH (bbETH) co-curated by Block Analitica & B.Protocol, TVL continues to grow steadily as incentives kick in and Blue builds a track record. Flagship ETH has reached 20M$ deposits within the first two weeks of launch.

Flagship ETH metrics and risk

The total deposits of the Flagship ETH vault (bbETH) have grown consistently since launch to about 20M$.

As of today bbETH is the main - and only - supplier in the ETH/wstETH market. The supply side on top of the native yield is earning MORPHO and wstETH incentives, as such it was expected that a slightly lower native rate than market would be acceptable for suppliers. Although borrow demand has followed, it has not as of yet matched the supply, and borrow rates on ETH have converged to a range lower than other lending platforms.

As such bbETH’s allocations are adjusted as events unfold, there is still a lot of supply capacity sitting in the idle market waiting for borrower demand to grow before allocating. It’s also important to keep in mind that while the market is underutilized the compounding rate will tend to go down making the LST leveraged loop more profitable, as of the time of writing loopers can earn up to 30+% with 18x leverage.

As incentives grow over the next weeks and Blue builds a track record, we continue to monitor risk and borrowing demand to adjust the allocation in the market accordingly.

On risk

As mentioned above borrowers from the ETH/wstETH market are taking full advantage of the profitability of the leverage LST yield on Morpho Blue and the high LLTV allowed by segregated markets and risk.

As of today, we see a high concentration of low-health borrower positions on the market, they do not pose solvency risk for the vault as the sizes are relatively small and liquidity remains strong in DEXes. However we recommend these borrowers monitor their positions frequently and adjust accordingly as the oracle is market-based and small fluctuations in price can cause the liquidation of these positions on Blue.

Learn more about the differences between market price and exchange rate here.

bbETH, a liquid venue

The wstETH and potential other LST markets still have room to grow, bbETH has around 35% of its ETH deposits withdrawable. 19% sitting in the idle market to give users liquidity without impacting rates and maintain a competitive rate for borrowing demand to grow. As more borrowing demand grows in the wstETH market more should be allocated to match it.

Realizing the Morpho vision

Morpho Blue is a lending primitive with low gas fees for borrowers, with segregated markets. MetaMorpho is built on top to abstract risk curation and revenue optimization for lenders. Today the only non-dust suppliers to Blue are MetaMorpho vaults, the main one being bbETH with about 72% of the total supply of borrowable assets.

Moreover the new Flagship USDC (bbUSDC) that we launched this week is growing quickly and attracting new depositors that are looking for pure-crypto yield.

As expected liquidity is very concentrated in the wstETH markets (WETH and USDC) for the launch, with WETH/wstETH being the largest market by supply and borrows.

However new markets have been permissionless-ly deployed :eyes: and waiting for collateral to build in these markets to show borrowing capacity to be allocated to.

The mismatch in the borrowing rates between Morpho Blue and other lending platforms gives borrowers the opportunity to leverage on their collateral at a lower price of capital and provides a nice arbitrage opportunity that suppliers are willing to sustain given the current incentives and their expected growth, see the Morpho forum for the relevant discussions.

In the coming weeks and as Blue continues to build a track record and borrowing demand and liquidity we believe more can be done and experimented with Blue, more collaterals :eyes:, more supply assets :eyes: and innovations in yield optimizations and risk curation.

Stay tuned for upcoming announcements.

Cowswap for the slippage data from wstETH to WETH.
Block Analitica’s new Morpho dashboard for all other graphs.