In the DeFi space, the issue of 'new listings' is significant, especially for top lending protocols like Aave. In order for Aave to support a new asset (such as a newly issued LST or LRT), it requires a lengthy process of community discussion, risk assessment, and governance voting, which can take several months.
This has led to a dilemma of 'long-tail assets': many high-quality assets with real borrowing needs are kept out due to Aave's 'process' being too slow.
Morpho Blue's claimed creation of a 'permissionless' market seems to address this issue.
Theoretically, anyone, at any time, can go to Morpho Blue's factory contract to create a lending market for 'long-tail asset X / stablecoin Y'. No approval from the Morpho team is needed, and no DAO vote is required. This sounds too good to be true.
But in my research, I found that it only solves the 'creation' problem, not the 'liquidity' problem.
Suppose I create a market called 'MyNewLST / USDC'. The market exists, but the question is: who dares to deposit USDC into this pool?
Depositors will immediately ask: who provides the oracle for this 'MyNewLST'? Is it reliable? What is its LLTV (liquidation LTV)? Is it reasonable? If the LST decouples, will my USDC turn into bad debt?
This is the essence of the Blue model, and also its 'cold' aspect: the protocol does not endorse any market.
Aave is 'centralized' risk management: Aave governance says this asset is safe, and everyone assumes it is safe.
Morpho Blue is 'market-driven' risk management: market creators 'quote' (set LLTV and oracles), and then wait for liquidity providers (LPs) to 'vote with money'.
So, Blue is not a paradise for 'shitcoins'. If you create a market with a shitcoin and a fake oracle, the result will only be: zero liquidity.
So what exactly does Blue solve?
It addresses those 'high-quality' assets that are 'stuck' in the process. For example, a new LST/LRT launched by a well-known team (like Lido or EigenLayer), with oracles supported by Chainlink and deep liquidity. In Aave, it might take 3 months. In Morpho Blue, a credible 'curator' (like Steakhouse or Gauntlet) can assess the risk in 3 days and then guide funds into this newly created market through their MetaMorpho Vault.
So, Blue does not enable all 'long-tail assets' to be lent, but rather accelerates the 'startup speed' of lending for 'consensus-based high-quality new assets' by 100 times. It decentralizes the auditing power from 'protocol governance' to 'market curators'. This is its true significance for long-tail assets.
@Morpho Labs 🦋 Labs 🦋