Hello everyone, I am Nan Ke. Today we will introduce another case of traditional financial institutions embracing the Morpho lending protocol.
According to reports, Pareto and FalconX have launched a credit vault cyclical leverage strategy built on the Morpho lending protocol, which is a DeFi structured product designed for qualified investors to amplify market-neutral credit strategy returns.
The core of this strategy lies in magnifying positions through cyclical operations, with the specific steps as follows:
Acquiring yield tokens: First, investors need to complete compliant KYC verification through platforms like Keyring Network. Then, funds are allocated to the credit vault (Credit Vault) in collaboration with Pareto and FalconX, and exchanged for a yield token named AA_FalconXUSDC as proof.
Initiating the Leverage Loop: Next, investors will deposit this yield token into the lending market specifically created for them on the Morpho protocol as collateral. According to the market rules, up to 77% of the collateral value can be borrowed in USDC stablecoins at the beginning. At this point, a key step arrives, and investors have two choices:
Manual Loop: The borrowed USDC is deposited back into the FalconX credit vault, minting new yield tokens, and then the above steps are repeated—depositing the new tokens into Morpho, borrowing more USDC… and so on, continuously adding leverage within preset risk parameters.
Automated Loop: To simplify operations and optimize risk control, investors can delegate the entire process to Gauntlet's Aera Vault. This vault will automatically execute a series of operations such as leverage stacking, rebalancing, and risk control.
Having understood this process, let's take a look at the logic and appeal behind it:
Core Strategy: Stacking Stable Returns: This strategy is usually anchored to low-volatility real-world assets (RWA) such as private credit. Its goal is to amplify the relatively stable underlying yield through circular lending. For example, if a credit vault has an annualized return of 8%, through 3x leverage operations, it could theoretically amplify the return to around 24% (after deducting borrowing costs). The entire process is governed by Gauntlet's clear leverage and liquidation logic, transforming complex margin trading into a structured arbitrage trade.
Strategic Advantages:
Risk Isolation and Customization: Thanks to the architecture of Morpho Blue, the lending market created for the AA_FalconXUSDC token is independent. This means that even if this specific market encounters risks, it will not affect other markets on the Morpho protocol.
Compliance and Admission: The strategy completes KYC through technologies such as zero-knowledge proofs while protecting user privacy, allowing complex leveraged strategies to be opened to qualified investors in a compliant manner.
Automation and Efficiency: The automated management achieved by Gauntlet Aera Vault significantly reduces the need for manual operations and the potential human errors that may arise, improving capital efficiency.
@Morpho Labs 🦋 @CoinTag #Morpho $MORPHO
