Decentralized finance (DeFi) risk management firm Gauntlet has teamed up with DeFi lending protocol Morpho just days after its abrupt split with Aave.
The partnership announced on Feb. 27 sees Gauntlet creating its own lending products on MorphoBlue, a new protocol that allows firms to spin up their own lending and borrowing pools dubbed “vaults.”
Typically, lending protocols hire firms like Gauntlet to help advise and manage risks. MorphoBlue, however, will effectively give risk managers the ability to create and manage their own lending protocols.
Historically risk management has operated under a pull model within DAOs via other service providers, delegates, and community. In MetaMorpho, risk management is a first-class citizen and the pull comes directly from the market. We anticipate stress-testing our capabilities and… https://t.co/qoz8aKefjp
— Gauntlet (@gauntlet_xyz) February 27, 2024
Morpho’s style of borrowing and lending differs from Aave’s, where lending pools must answer to the AaveDAO — the decentralized autonomous organization responsible for governing the protocol.
In a Feb. 21 AaveDAO forum post, Gauntlet co-founder and operating chief John Morrow broke off his firm’s relationship with Aave, citing difficulties navigating “inconsistent guidelines and unwritten objectives of the largest stakeholders.”
The unexpected split came just two months after Gauntlet signed a one-year, $1.6 million contract with AaveDAO.
The move to partner with Morpho clears up much of the confusion among DeFi market pundits, with many wondering about Gauntlet’s next move after splitting with Aave.
Morpho co-founder Paul Frambot took aim at Aave in a Feb. 22 X post, claiming the protocol was “attempting to prevent the growth” of Morpho by introducing a reward program dubbed Merit.
So. Aave is attempting to prevent the growth of Morpho by introducing Merit, a rewards program. Although I prefer to avoid drama/politics to focus on Morpho, I have been asked countless times to comment on this proposal. Hence, I will simply provide some clarifications on the…
— Paul Frambot | Morpho (@PaulFrambot) February 19, 2024
Frambot also outlined how Morpho aims to compete with Aave and Compound — the two firms that have historically dominated the DeFi lending space.
In Frambot’s view, Morpho’s Blue protocol is a direct competitor to AaveV3 and CompoundV3, offering more transparent incentives and risk management for users.
Aave remains the DeFi lending market leader with more than $9.3 billion in total value locked (TVL), compared to $2.7 billion and $978 million for Morpho, according to DefiLlama data.
In a follow-up Feb. 22 X post, Frambot described Gauntlets’ split from Aave as inevitable, pointing to “poorly aligned” incentives, difficulties with the scalability of cash flow, and the combination of politics and complex mathematics.
Gauntlet leaving Aave was inevitable in retrospect.
— Paul Frambot | Morpho (@PaulFrambot) February 21, 2024
Working as a risk consultant for DAOs is very challenging:
- Incentives are poorly aligned.
- Cashflow is very uncertain and not scalable.
- Politics get mixed with complex maths (not good and even risky if you ask me).
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