IOSG: After the vulnerability of the single protocol was exposed, we chose to raise the stake in Morpho

Original title: IOSG Weekly Brief, after exposure of vulnerability to monogamous protocols, we chose to add Morpho #330
Original by Momir Amidzic, IOSG Ventures Management Partner

TL;DR

1.Borrowing and money markets are the bottom building blocks of the chain economy。Credit, borrowing, mortgages and proceeds are central mechanisms for capital allocation, and as more assets are linked, the infrastructure to carry these functions will be at the centre of the chain economy。

2.Modularization is the most important design option for Morpho。By separating the core lending infrastructure from pool planning, risk-taking and sales, Morpho allows different participants to build different risk-benefit portfolios, avoiding the hidden vulnerability of single-party agreements to "a problem and global involvement"。

3.Morpho captures the value of unit capital in exchange for growth and scalability。IT DOES NOT INSIST ON TAKING EACH RISK ON ITS OWN, THUS BREAKING THROUGH THE GROWTH CEILING OF INTERNAL WIND CONTROL TEAMS AND GOVERNANCE PROCESSES, BETTER SUITED TO THE RECIPIENT AGENCIES, THE FINANCIAL SCIENCE PLATFORM AND THE RWA ISSUER。

I'm sorry.Simplicity is in itself a trust, and the Lindy effect is crucial in financial infrastructure。From the very beginning, Morpho was designed with a vision of the future and a very simple principle, avoiding the "reset of trust clocks" by constantly rewriting the bottom structure。

5.The team has shown rare long-termism and alignment of interests。From the token alignment proposal to the choice of the co-founder not to invest in angels, the Morpho team focused all its energy on this。

Two years ago, we first invested in Morpho. Today, we choose to make additional investments。

The reason is not just that Morpho is growing in size, but that the initial investment logic is becoming clearer over time:Morpho is one of the most important attempts to rebuild the money market in an increasingly large, institutionalized and modular financial system。

Our core judgement is simple: borrowing and money markets are the bottom stone of any economy. Credit, borrowing, lending, mortgages and gains are not marginal financial activities, but core mechanisms for capital allocation. As more assets are chained, the infrastructure to manage these functions will be at the centre of the chain economy。

Morpho is the strongest candidate for this infrastructure。

Modularization: decisive design choices

From the beginning, Morpho was different because of his adherence to modularization。

This is in sharp contrast to the monomerized routes of many DeFi agreements, which bring together all operations under the same roof and are managed under an integrated risk framework. This model has its advantages, but it also burys hidden vulnerabilities。When an agreement tries to do too much in a compact system, problems anywhere can spread to the whole structure。

A series of recent events in DeFi have shown how dangerous this risk is. A relatively small opening in a large agreement still has the potential to trigger greater pressure, a clearing chain and even a crowding panic. Trying to capture every new trend while maintaining a monolithic structure often creates unexpected risks。

Morpho took another road。

By separating the core lending infrastructure from pool planning, risk-taking and sales, Morpho allows different participants to build different risk-benefit portfolios。Users are not forced to enter a large pool that combines all kinds of exposures, but are free to choose which masterminds they trust, which kind of collateral, which strategy, and which risk framework。

This is important because the needs of users are different. There are those who want conservative, institutional-level openings, and those who want opportunities for higher risks and returns。A modular system can satisfy both, without placing the same risk on all users。

In exchange for unit economic growth

The modular route of Morpho also offers an important trade-off:It places growth and scalability before unit asset values are captured。

Because Morpho doesn't plan every pool personally, it doesn't directly cover every risk. Correspondingly, it may have a weaker value capture capacity per unit of capital than an agreement with full control over the risk bank。

But this trade-off is precisely the key to Morpho scalability。

If a deal insists on taking all the risks, it's setting smallpox for its growth. Board— Its pace of expansion can only be subject to internal wind control teams, governance processes and a marketing framework. This may work in the smaller DeFi world, but when the goal is to take over large institutions, financial science and technology platforms, and the issuer of real world assets (RWAs)。

These outside players do not want to accept passively a pre-arranged "risk cocktail" at the protocol level. They want control: they decide how the asset is to be sold, what risks they accept, and how the product is to be designed for their own users。

Morpho gave them this flexibility。

This brings Morpho to the next stage of DeFi growth -- the integration of DeFi, traditional finance, financial technology and RWA。Apollo's cooperation with Morpho is the signal in this direction. The results may take time to validate, but the strategic direction is clear。

For institutions that wish to put real world assets in chains, or build products based on DeFi infrastructure, it is important to see how they can build their own infrastructureMorpho is becoming more and more like that natural choice。

Simplicity is a trust

Another underestimated part of Morpho's design is its simplicity。

Simplicity is beautiful, but difficult. It requires restraint and difficult trade-offs。It is much more difficult to make a complex thing that is simple enough to carry the core financial infrastructure。

This is particularly important in DeFi。

When an agreement manages the bulk of the funds, the user needs to understand what it trusts, the auditor needs to be able to extrapolate the code logic and the agency needs to be sure that there is no excess offensive surface in the system。Complexity itself becomes a liability。

Morpho ' s design philosophy has always been clear: it is building a core financial infrastructure. This requires a completely different mindset from fast-paced consumer products or speculative DeFi applications。

The goal is not to keep pushing back and forthA system that is robust enough to allow trust to accumulate over time。

Lindy, why does it matter

That's the point of Lindy's effect。

In the area of financial infrastructureAs the same core system continues to operate safely, trust increases over time。Every additional year of operation has value, every loophole avoided has value, and every period of market pressure passed peacefully has value。

But if an agreement continues to rewrite its base, the compound benefits of this trust will be interrupted。

if one loan agreement moves from a major contractual structure to another — even if it calls the new system "v4" —It could actually be equivalent to turning the clock to zero。The new architecture is back to day zero, and the accumulated Lindy effect of the past cannot be fully inherited。

Morpho has different paths。From the outset, the team was built on the principles of future orientation and simplicity, laying down a foundation that did not need to be rebuilt repeatedly。This is particularly critical for agreements that require asset management over a long period of time。

The trust in the financial infrastructure is not built on an endless iterative version, but on consistency, clarity and time。

Why money markets matter

Monetary markets and lending agreements are not the most traded segments of the block chain industry, but they tend to manage the largest asset pools。

The difference is crucial。

Trading platforms and places can draw attention to trade volumes, butLending agreements are closer to the foundations of the entire financial system— They determine how collateral is used, how gains are generated, how leverage is formed, and how capital flows across parts of the economy。

These functions can only become more important as more and more assets exist in chain form. Stabilizing currencies, monetizing bonds, monetizing stocks, institutional collateral, DeFi raw assets, and all kinds of future RWAs need to be built around their credit and revenue infrastructure。

Morpho is putting himself at the centre of the world。

Its modular structure allows it to support a much broader type of asset and participant than a single agreement; its simplicity makes it more trusted; its Curator model makes it more adaptable; and its design allows institutions to participate in their own way, without having to be pushed into a “one size fits all” risk framework。

The team's long-termism and balance of interests

The last puzzle of investment logic is the team。

The Morpho team showed the rare long-termism of the industry。This is reflected not only in the design of the agreement, but also in the way they deal with the convergence of interests。

An example is the proposal for currency alignment. Morpho has long established a higher standard for "how the agreement team should deal with the relationship between the operating entity and the holder of the coin" with the aim of reducing conflicts of interest and ensuring that long-term values are deposited through the core matching vehicle of the token。

The co-founders also demonstrated that commitment with their own actions。They chose not to invest in other projects as angels, thereby reducing potential conflicts of interest and making Morpho their only economic and intellectual input。

This focus is self-evident. The Morpho team has been particularly focused in a business where many of its founders have distracted themselves from multiple projects, side businesses and narratives。

Concluding remarks

We've chosen to raise the bet Morpho, from the intersection of the following judgments:

First, money markets are the bottom building blocks of the chain economy。

Second, modularization is the right structural choice in a world where DeFi, traditional finance, financial technology and RWA are increasingly integrated。

Thirdly, for financial infrastructure, simplicity and trust are more important than an ongoing resurgence。

Fourthly, Morpho was designed to give it a credible path beyond DeFi original users to become an institutional financial infrastructure。

Finally, the team demonstrated the long-term convergence of vision and interests needed to build something of such importance。

Morpho is not just another loan agreement, but a modular foundation for the chain credit market. As the financial system continues to move up the chain, we believe that the importance of this foundation will only grow。

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