Let's simulate an interesting scenario. Now, Steakhouse and Gauntlet have both opened USDC Vaults, and their goals are the same: to steal each other's deposits.
What do they use to rob? Using APY.
This has initiated a battle of yields among the 'curators'. The 'battlefield' of this war is the Morpho Blue market below. And the 'weapons' are each curator's own 'risk strategies'.
Phase one: Competing for 'blue-chip' efficiency.
At the beginning, everyone might only dare to invest in the safest blue-chip markets like WETH/USDC and WBTC/USDC. What is being compared at this time? Who has the better Gas
Optimization done well, whose 'Rebalancing' strategy is more sensitive, can move funds from low-interest markets to high-interest markets more quickly. At this stage, everyone's yields will be very close, competing on 'operational efficiency'.
Stage Two: Competing on 'Risk Boundaries'.
Soon, there will be curators who are not satisfied. To raise the APY, Gauntlet might say: 'My model shows that a 90% LTV market for stETH/USDC is safe.' So it allocates 20% of the funds there.
As a result, Gauntlet's Vault APY will be significantly higher than that of the blue-chip-only Steakhouse.
At this point, users will face a choice: do I want the 'stability' of Steakhouse or the 'higher 0.5%' of Gauntlet? This forces Steakhouse to also follow suit and evaluate this risk.
Stage Three: Transparent 'Risk Pricing'.
As this war reaches its end, 'risk' will become extremely transparent. You will clearly see:
Steakhouse (Conservative Strategy) = 5% APY
Gauntlet (Moderate Strategy, including LST) = 5.5% APY
AnonCurator (Aggressive Strategy, including various LRT) = 7% APY
This 0.5% and 2% interest differential is the market's 'real-time pricing' of LST and LRT risks. Curators must publicly disclose their strategies to prove to users 'why I can earn this extra 0.5%, and what additional risks you are taking for it.'
This 'yield war' will squeeze out all 'risk-free' interest differentials. If curators want to win, there are only two paths:
True risk control Alpha: your model is simply better than others, able to detect risks earlier or price risks more accurately.
Open new battlefields: create a high-yield Blue market that others do not have (for example, a market for a specific derivative), then use your Vault to provide liquidity and earn 'exclusive' yields.
To me, this deduction is too fascinating. It liberates the act of 'earning yields' from the 'black box of protocols' and turns it into a transparent, brutal competition of curators that speaks to real skills (risk control capabilities).
@Morpho Labs 🦋 Labs 🦋
