Paul Frambot, CEO of Morpho Labs, on DeFi 2.0, Modular Layered Protocols, and The Next Evolution of DeFi | Ep. 318
In an exclusive interview with Cryptonews, Paul Frambot, CEO of research and development company Morpho Labs, told the host Matt Zahab how the four co-founders raised millions for Morpho and what changes to DeFi trends the protocol aims to bring.
He told listeners how he envisages the next phase of DeFi, and why the Morpho Labs team opted for a minimalist approach, contrary to the current DeFi trends.
Finally, he touched upon the recent disagreement with Aaave, and Gauntlet leaving Aave to join Morpho Labs, as well as his opinion that DAOs are not suited for managing the risk of protocols.
In this interview, Frambot discussed:
- liquid staking and yield farming;
- next evolution of DeFi Spending;
- moving from app to infra – the future of DeFi;
- DeFi 2.0 defining crypto’s coming bull market;
- DeFi risk manager Gauntlet leaving Aave to join Morpho;
- a shift from monolithic to layered protocols in 2024;
- DAOs not being suited for managing the risk of protocols;
- Morpho Blue;
- lowering the barrier to entry;
- raising $18 million for Morpho from a16z and Variant while still in school.
Paul Frambot gave a wide-ranging interview, which you can watch above – or you can read a part of it below.
Students Raising Millions
During his second and third years at the Institut Polytechnique de Paris, where he earned his Master’s degree in 2021, Frambot managed to raise millions over two rounds.
At the time, Frambot was studying consensus algorithms and distributed systems. He had an opportunity to meet “a bunch of researchers and interesting people” working in decentralized finance (DeFi) and blockchain.
This is how the first think tank around DeFi was created there. The members discussed what they could improve in DeFi, specifically lending.
Through the industry insiders, Frambot got in touch with investors and made his way into the VC world.
In the pre-seed round, the group raised $1 million for Morpho. They used the funds to hire a few people and do the first contract audits of the protocol’s first version.
A few months later, they raised more money, including from Andreessen Horowitz and Variant, with Frambot stressing that they have over 100 investors in Morpho.
That said, the four co-founders managed to raise $18 million for Morpho while still at university.
DeFi 2.0: Moving from App to Infra
Frambot discussed what DeFi 2.0 looks like and how it scales.
He argued that the next evolution of DeFi involves moving from app to infra.
The co-founder went on to explain that the earlier protocols, such as Maker, Uniswap, Aave, and Compound, were usable as is, and user-friendly in the sense that they were self-contained.
That was the first iteration of DeFi.
But protocols want to scale and enable more features.
One way to move forward is to enshrine all features in one monolithic protocol. But that may comprise efficiency and security because there are more lines of code to handle.
“You preserve the UX of it, the product aspect of it, but it does not scale.”
Morpho decided not to have a monolithic pool but to break the pool into two pieces instead: the risk management part and the protocol part.
This is a layered approach, with “more layers of abstraction, exactly the same way the internet has been built.”
Frambot said that the internet stack is built in layers. When we use the internet, we don’t experience the full complexity of it. We just see, for example, a browser. But behind the scenes, there are different layers of abstraction.
He argued that “it feels like this is exactly the way DeFi is going, which is having core communication protocols, core financial protocols that do not have any opinion about risk, about compliance. But on top, you rebuild the risk and compliance profile that you want.”
This allows the protocol to be at the bottom, followed by the risk management layer, and then on top, the user application layer.
In less than 2 months since launch, @MorphoLabs Blue protocol has reached over $200m in TVL, with continued growth by introducing a new risk layer for suppliers (aka MetaMorpho vaults).
Here we'll explain how you can fully utilize Blue with advanced DFS features. 👇 pic.twitter.com/9yzwFFeRjq
— DeFi Saver (@DeFiSaver) March 14, 2024
And we go back to DeFi: what the industry is looking to do is build infrastructure for wealth – on top of which the entire financial flow of humanity will be handled.
With the current security practices, this is unimaginable.
Therefore, the advantage of the described, scalable DeFi 2.0 is that it enables protocols to be immutable and simple, and it segregates complexity in layers, avoiding the dangers of a monolithic pool.
Meanwhile, DeFi is growing. That used to be an issue, and it has been difficult breaking out of the existing circle.
But “I think the approach I’m describing is such a neat way of progressively forcing the boundaries of that space,” Frambot said.
In a few weeks of existence, Morpho Blue markets already have insane traction.
Interest generated are growing exponentially and so is the profitability of the vault curators.
Our main objective is that all our builders have one of the most profitable business in the industry! pic.twitter.com/qs9sDFCRXK
— Paul Frambot | Morpho (@PaulFrambot) March 13, 2024
Going Against Latest DeFi Trends with a Minimalistic Approach
Frambot has shared on his social media that Morpho does one job: simple and efficient lending and borrowing. That’s all. There are no stablecoins, DEXes, equity, advisory, etc. In other words escaping from the wave of DeFi trends and services flooding the market.
This is a rare approach in a world where projects aim to venture into various different spheres.
Frambot explained that they want to be “laser-focused, do one thing, and do it extremely well.” They don’t want to spread.
“And this, in my opinion, is crucial in DeFi because there are a lot of opportunities.”
Moreover, unlike most other projects, Morpho’s founders are contractually forbidden to invest in or advise any other project. “We have to be focused on Morpho,” said Frambot.
This approach, he argued, has given the co-founders a unique approach to DeFi landing in general.
Morpho’s first version, which now has more than $2 billion in deposits, “was never seen before in the space and not even close to looking like another protocol,” he said.
Furthermore, the new version, Morpho Blue, is also “extremely different” from what people are used to seeing across DeFi trends and updates.
𝟮/ 𝗪𝗵𝘆
Morpho is the 3rd largest lending platform on Ethereum, with over $1B in deposits.
Yet, current platforms are not scalable enough to match the trillions processed by TradFi lending markets.
Morpho must evolve to become autonomous and elevate decentralized lending.
— Paul Frambot | Morpho (@PaulFrambot) October 10, 2023
The protocol enables a very wide variety of use cases, based on top of a trustless and efficient base protocol of just 600 lines of code, instead of thousands.
He remarked,
“Taking such a minimalistic approach goes against DeFi 1.0 trends, which is building and then training as many features [as possible] to be able to do more and more.”
Per Frambot, Morpho’s strategy is “definitely a winning” one long-term.
DAOs May Not Be the Best Option
Aside from his stance on DeFi trends, Frambot has argued that decentralized autonomous organizations (DAOs) are not suited for managing the risk of protocols, given that effective risk management demands both expertise and the ability to make super-fast, efficient decisions.
During the interview, he explained that he is not against DAO-based risk managers but that he doesn’t believe that it’s the best thing to do. In the end, it will be up to the market to decide, though.
Doing risk management is highly complex. It entails multi-dimensional problems, statistics, math, data, etc.
For example, in the case of Aave, there are more than 700 different risk parameters: liquidation incentives, collateral factors, oracles, supply caps, borrow caps for each asset, and hundreds more.
“Essentially, we’re asking token holders to vote on a daily basis to improve, change, and adjust those risk parameters. […] I don’t think token holders, to be frank, could be anybody. I don’t think they’re the right person to do this job.”
And while DAOs and decentralization in general are excellent concepts, we must make sure “we do things that truly make sense to provide the best possible use cases, experience, and safety for users.”
Meanwhile, in Morpho Blue, the risk management is completely externalized from the protocol.
BlockAnalitica, Bprotocol, Steakhouse Financial, re7, … and now Gauntlet.
Don’t you see what is happening? DeFi lending has been unbundled. Risk management has been completely externalized from the core protocol. https://t.co/R49cjkE5uU
— Paul Frambot | Morpho (@PaulFrambot) March 13, 2024
Everything built on top of Morpho Blue can have its own specific risk management: some can be token-based risk, and others can be centralized, or controlled by users.
“And we’ll see what formula is the best [for] risk management.”
In the end, it could be one approach or a combination of several that will emerge as a winner.
__________
About Paul Frambot
Paul Frambot is the Co-Founder and CEO of Morpho Labs, a research and development company responsible for building and growing the Morpho protocol.
Frambot co-founded Morpho Labs whilst studying towards his now-completed Master’s in Parallel and Distributed Systems from the Institut Polytechnique de Paris in 2021.
During his studies, he raised $18 million from top investors – including Andreessen Horowitz (a16z) and Variant – for Morpho, which has since grown into a multi-billion-dollar lending protocol.
The latest version, Morpho Blue, is an independent, simple protocol that serves as a secure, efficient, and flexible base layer for users and applications.
