Morpho

The integration of Morpho vaults and markets into Oku marks a major milestone in delivering a seamless and powerful DeFi experience. By combining DeFi meta-aggregation with Morpho’s robust lending and borrowing infrastructure, users can now access frictionless money markets directly on Oku.

What is Morpho?

Morpho is a decentralized lending protocol that enables over-collateralized borrowing and lending of crypto assets across EVM-compatible networks. It acts as a trustless, composable layer for DeFi lending where users can deposit assets to earn passive yield or borrow against collateralized positions. Built for transparency, efficiency, and modularity, Morpho allows for both ease of use and flexibility for advanced strategies.

Key Concepts of Morpho

Lending in Morpho involves:

• Collateralization: Users provide collateral to borrow other assets

• Risk Management: Liquidation mechanisms protect the protocol through loan-to-value ratios

• Interest Accrual: Dynamic interest rates based on market conditions

• Open Participation: Anyone can lend or borrow through the protocol

• Non-custodial Design: Users maintain ownership of their assets at all times

Vaults & Markets

Let’s begin by explaining the difference between Vaults and Markets

Vaults

Morpho Vaults are yield-generating accounts that allow users to deposit a single token to be managed by a curator. The curator of the vault allocates capital across various Morpho markets in accordance with pre-set risk strategies to generate sustainable yield for the depositor. At any time, users retain full control over their assets and can withdraw their liquidity at their discretion.

Vaults are:

• Simplistic – Users don’t need to micromanage capital allocation.

• Flexible – Assets can be withdrawn at any time.

• Curated – Managed by experienced curators to optimize yield and risk.

Think of vaults as your passive yield engine - one click deposits and actively managed behind the scenes

Markets

Morpho Markets are isolated lending pools that pair one collateral asset with one loan asset.

Each market is:

• Immutable – Parameters like LLTV are fixed at creation.

• Isolated – Risk is limited to the specific market.

• Transparent – Clear conditions for lending and borrowing

• Simple – One collateral asset, one loan asset per market

Example: An ETH/USDC market allows users to borrow USDC by providing ETH as collateral, under specific risk conditions.

Key Concepts

Liquidation Loan-To-Value (LLTV)

LLTV defines the maximum borrowing capacity in a market. For instance, if a market has an LLTV of 80%, a user can borrow up to $80 for every $100 in collateral. If the value of their collateral drops or their debt rises beyond this ratio, the position is at risk of liquidation.

Liquidation

Liquidation in DeFi refers to the process whereby a user's collateral is sold off to cover a loan when the value of that collateral falls below a certain threshold. If the loan value declines below the LLTV, the user's collateral will be liquidated to protect lenders and allow them to withdraw their initial contribution of capital. A position becomes liquidatable when:

• Collateral value decreases

• Debt increases due to accrued interest

• A combination of both factors

Example: If a borrower provides $100 of collateral in a market with an LLTV of 80%:

• The position is safe when the borrowed value is <= $80

• The position becomes liquidatable when the borrowed value > $80

An LLTV of 80% provides lenders with an amount of wiggle room (20%) between the point of liquidation and where their collateral would depreciate in value

For a detailed breakdown of liquidation mechanics with calculations and examples, please visit https://docs.morpho.org/overview/concepts/liquidation/

In the event when a position becomes liquidatable, an external third party - a liquidator - can repay part or all of the borrower’s debt in exchange for an equivalent amount of collateral plus a liquidation bonus.

Curators

Curators are individuals or entities that manage vault strategies and optimize risk-adjusted returns for depositors. They decide which markets a vault allocates to and adjust parameters to maximize yield while maintaining safety.

Key Responsibilities of a Curator:

• Market Selection & Management: Evaluate and select appropriate markets based on risk-reward profiles, actively manages caps and maintains market health

• Rate Optimization: Balance lending and borrowing rates to maintain competitive yields for depositors while attracting borrowers

• Liquidity Allocation: Strategic distribution of vault capital across markets

• Risk Monitoring: Assess collateral quality, oracle reliability, liquidation feasibility and on-chain liquidity to protect against bad debt events

• Communication: Provide transparency around strategy and risk parameters

Curator's typically assign a performance fee to capture a portion of the yield generated by the vault. This fee is not charged on user's deposits or rewards, but collected on the interest from the vault

Rewards

You can claim rewards directly on Oku through the Rewards tab near the bottom of the page. Rewards are claimable weekly and may include a variety of tokens, depending on the incentivized campaigns set up by the Vault creator.

$CORN incentives on the Smokehouse BTCN vault

Borrow WBTCN against LBTC

There may be occasions where Net APR is negative as in the image above. In this case, users are incentivized to borrow capital against their collateral. Paid to borrow money, you say...🤑

Additional incentive campaigns, like Worldchain, may be run through 3rd party services such as Merkl.xyz. To claim rewards on Merkl and view specific campaign information. Merkl rewards are also claimable in the Rewards tab on Oku. Rewards are typically paid out every 6-8 hours.