Understanding MetaMorpho: Enabling Diverse Risk Profiles

MetaMorpho combines the best of isolated markets and multi-asset lending pools to create a better way to lend. In time, we believe MetaMorpho vaults will become the default lending solution.

Last week, we introduced the Understanding MetaMorpho article series with  Part One: Intro to the Morpho Approach Simplifying Isolated Markets .

Today, we share Part Two: Enabling Diverse Risk Profiles to explain how, unlike the traditional one-size-fits-all approach taken by multi-asset lending pools, MetaMorpho Vaults can cater to any risk profile imaginable.

Going beyond one-size-fits-all

Every user has their own tolerance for risk and each collateral asset has a set of associated risks, some with more than others.

For that reason, users with a lower risk tolerance may prefer to avoid lending against certain collateral assets, whereas it may be the opposite for users with a greater appetite for risk.

However, a core limitation of multi-asset lending pools is that all users are forced into a one-size-fits-all risk profile, regardless of their risk appetite.

The above illustrates how every lender to a multi-asset pool is exposed to every collateral asset in the pool: wstETH, WBTC, LINK, USDT, sDAI, DAI, rETH, RPL, AAVE, USDC, LINK, etc. There is no option to lend against specific collateral or a combination of collateral assets aligned with one's tolerance for risk.

Catering to any risk profile

MetaMorpho Vaults are built on top of Morpho Blue’s isolated markets. Each vault having a unique risk profile determined by the markets they lend to.

Lenders can choose to deposit in vaults that best align with their risk appetite. Users with a higher risk tolerance can deposit in a vault that lends to “riskier” markets and vice versa.

For example, the chart shows three different lenders depositing in three different vaults:

• USDC Vault lending to wstETH/USDC wbIB01/USDC

• ETH Vault lending to wstETH/WETH sDAI/WETH

• ETH Vault lending to osETH/wETH and weETH/WETH

Each lender can deposit into one or more vaults to tailor their risk exposure:

• Lender #1 has exposure to wstETH (crypto) and wbIB01 (RWA) markets.

• Lender #2 has exposure to wstETH and sDAI markets.

• Lender#3 has exposure to wstETH, sDAI, osETH, and weETH markets.

This approach allows lenders to opt in and out of certain markets providing them with a level of flexibility unattainable from multi-asset lending pools. Importantly, it can scale to any number of vaults, markets, and risk profiles catering to any risk profile imaginable.

This is the end of part two of the Understanding MetaMorpho series. Next week, we will release Part Three: Aggregating then Amplifying Liquidity For Lenders.

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