Morpho 剑指200万亿美元信贷市场｜Paul Frambot

Nothing said on Empire is a recommendation to buy or sell any investments or products.

We’ve got Paul, one of the founders of Morpho, one of the fastest-growing companies in all of crypto right now. Paul, welcome to the show, my friend.

1. Morpho’s Market And Token Thesis

Hey, thanks for having me.

2. Funding A $200 Trillion Ambition

Yeah, last time I saw you, we were in Japan. Shortly after that, you guys wrapped up a monster fundraise. I think it was $150 million. Did that fundraise come together in Japan? We were hanging with some of the Paradigm folks there, and I think Paradigm led the round. Or did it come together before that?

I think it was done already. Everything was done pretty quickly. It took approximately 2–3 weeks to do, and I believe that at this point in time, the fundraising was already done. We were finalizing some of the strategic investors who were coming into the round, including some of the people we met in Japan during this trip, by the way. But yeah, it was done.

2–3 weeks to raise $150 million?

Yeah, it was a bit more. It was like $175 million.

2–3 weeks to finalize the commercial side of it, like the terms? Everything? That’s amazing, right?

And to do everything, I mean, there’s a lot of operational stuff that you do afterward that lasts forever, like settling the transactions and everything.

But I think Morpho is very easy to underwrite because everything is open, right? Obviously, you would want to talk to me and talk to the team, et cetera, but this is a matter of 3 or 4 calls. You can do a lot of the underwriting as an investor on your own. Also, the token is public, right?

Most of the investors in the industry already have a perspective on Morpho. They already have depth on Morpho, so they already know, to some extent. And I also think that if you’re an investor right now, and if you believe in tokens and the chain, there are actually quite a few projects that are investable, is my sense.

I think there are only a few. I think there are only a few primitives. You have stablecoins, financing, trading, payments—there are a few categories like this. But by design, crypto networks and DeFi networks will be winner-take-all markets, so you’re going to have very strong concentration. There are only going to be a few players that are worth investing in.

Or do you think it’ll be a winner-take-all market when that’s not actually how it looks in traditional capital markets?

It’s a good question. There are 2 reasons.

I think there’s a more theoretical, fundamental reason, which is that the protocols that are going to unlock the most value for the end user are the ones that are going to aggregate the most capital and the most people, right? If you think, for example, of a credit network like Morpho, Morpho works at its best when it’s connecting every single lender to every single borrower.

If you’re a borrower, you come to borrow, and you want to be connected to the entirety of the world. You want to have the entirety of the world compete for you and assess your opportunity. So, as a network, maximum connectivity delivers the best product.

It’s also true in TradFi. So why is that not the case in TradFi? Well, in TradFi, that would be a pretty bad monopoly. The good news is that we have decentralized networks. I think most of the value proposition of being decentralized is going to be to—

To have the set of standards that are going to unify everybody. No one is going to care if it’s the same way Morpho is able to work with Robinhood, Coinbase, and Kraken. Those companies are competing with one another, but they trust the neutrality of the network.

Most importantly, I don’t control anything. I can’t do anything. I can’t advantage one or the other. The code is how the code is, right? It’s similar to HTTP. It would be bad to have HTTP/1 and HTTP/2—I mean, you have to version HTTP—but to have 2, you see what I mean? You would not be able to reach the vast majority of the protocol.

Exactly, exactly.

I have many questions on that rabbit hole, but if you said there are only a few investable tokens, what other tokens are investable right now?

Everything I’m going to say is not financial advice, obviously. I think the first thing I would look at is whether the team understands what tokens are and has structured its token in a way that makes sense.

In the case of a DeFi protocol, is your token a way to own a share of the network? Is your token network equity? It has to be some form of equity in the decentralized network.

I think very few projects were in that situation until a year ago. For example, Uniswap has now done a very good job at unifying everything, as they like to say. I’m generally a big fan of their design and the way they’ve built the company, so that probably would be one of them.

What matters to me is how thoughtful the team is about aligning the incentives around the token. To me, that does not mean doing buybacks and burns or that type of thing. How thoughtful are you about, for example, not turning on the buybacks if you don’t need to and if it does not make any sense? Or not having equity on the side if it does not make sense? In some cases, it could make sense.

Those are the key things I would say, surely from a financial engineering perspective, but it also tells you a lot about how principled the team is and how long-term-oriented they can be.

Yeah. How did you think about this? There’s so much conversation around it. This is such a hot topic in crypto. It’s actually not what I want to spend the majority of this podcast talking about, but maybe one more question here would be this dynamic between the equity and the token. I think you guys had a blog post on this maybe a year ago. I’m curious.

I like to think we kickstarted the trend.

Yeah, you guys were very, very early there. I think you and I are both aligned that you should have one thing that accrues the value for your company, your project, or whatever you want to call it—your protocol. What would you do if you were a founder who has both today? Would you just kill one?

Yes, I think so. I think—and it’s hard, right?—but I would get one absorbed by the other. I don’t think there’s a single rule for every project. I think the only thing that’s important is that it has to be clear for investors: What value are you creating, and where does it accrue?

Basically, the question is: What are you getting into if you’re buying something? It’s this basic principle, but it’s actually not something we’ve done for 5 years, right? If you don’t have an extremely clear answer, and both the holders of one and the holders of the other are aware, it’s a mess.

Yeah.

So, in the case of decentralized networks, they’re very on-chain-native. I think it makes a lot of sense to have them owned by a similarly on-chain asset, which is a token. If you have a company on the side, then I don’t think the value of the network should accrue in that.

Maybe if you have a service business, it could accrue there. Maybe that makes sense, but in which case you may want to have disclosures and very clear mandates for everybody.

I’ll be frank: I always find it messy. I never find a way where it works, et cetera. I think the most important thing is that you want to be aligned with the team as an investor. You want to make sure that you know their incentives.

That’s the biggest thing. Out of all the tokenomics designs that people could invent, the only thing you should care about as an investor is: Do you have the same incentives as the founder? It’s the only thing that matters, right?

You want to be able to know what their payoff is and what their incentive structure is. You want to make sure that you’re able to fence the value around and that whenever some piece of the value is taken, you’re able to also profit, basically.

Anyway, I think the advice for people is to do the hard work of merging one with the other if you can’t find a legitimate reason to keep the 2 separate. Don’t invent the reason if it does not exist.

Most people did this because of the Gensler era, and they thought they had to prove their decentralization by having a bunch of companies working together. That’s the initial reason why, with this industry, we sort of decentralized the corporations—which, by the way, in my opinion, was not a good legal argument for decentralization.

3. Ribbit’s Role In Morpho

But whatever. I would merge because incentives define outcomes, and if you don’t have clear incentive alignment, you have a terrible outcome.

Yeah. Yeah, I tend to agree.

So, David Senra just posted a podcast this week with Micky Malka, who started Ribbit Capital. Ribbit Capital is obviously a big investor in Morpho, and Micky is a very prolific fintech investor and a very, very early crypto investor.

I think Micky started a company with Wences Casares, who’s a very OG Bitcoin pillar for a lot of the people in Silicon Valley. I haven’t listened to the episode, actually, but I think Micky started it with him. Micky’s just extremely early, a really great thinker, and a great investor—and also an investor in Morpho.

I’m curious what Micky and the Ribbit team have done to help Morpho, if anything.

Yes, they’ve done a lot. First thing I’ll say: Micky specifically—and Ribbit in general—they’re not the typical fund. It’s a very original fund, the way they’re built. They’re quite small compared with some of the very large VCs that exist today. They’re not super technical; they would not do the protocol design work that Paradigm would do, right? They don’t have the huge team and operating machine that a16z would have, but they have 2 things.

They understand incentives extremely well, and they have such depth and understanding of the finance business. The intersection of tech and finance—they understand that very well. Ribbit literally means “interest rate” in ancient Hebrew, right? That was half of their pitch to me. It was like, “Our fund is literally named interest rate. You should invest.” I was like, “Oh, that kind of makes sense. You guys must have thought about it.”

That’s one thing: they have a lot of depth at the intersection of finance and tech. The second thing is that they are incredibly trusted in human-to-human relationships. You’ll never see them on Twitter. I don’t even know if Mickey has an account or something. But anyone important in the world of finance knows about Mickey. Trust me.

I can’t name specifically the relationships that they helped us build, but they’ve helped Morpho build extremely important relationships.

Yeah.

Most of them are not public today, but they’ve been instrumental. Especially Mickey—he doesn’t talk much because, obviously, he has a bunch of things to do, but he knows extremely well what to tell you and who to connect you with. It’s pretty impressive in that regard.

Yeah. I can imagine where they were helpful. I think Mickey sits on the board of Robinhood, and I believe they’re one of the early investors in Coinbase.

They did the seed of Coinbase and the—

4. Morpho And Midnight Explained

Coinbase. Yeah, I think Mickey’s on the board of Robinhood. So, yeah, those are 2 companies you guys are just embedded with.

For people listening who may not be as familiar with Morpho, what is the—Ribbit has the napkin test. What is the napkin test for how you talk about Morpho?

Yeah, Morpho is infrastructure for lending and borrowing. We basically connect 2 types of users: lenders on one end that have excess capital and want to generate interest, and people on the other end that have a need for financing and want to borrow money. Morpho builds the pipe to connect the 2 together.

Our goal, as I was mentioning at the beginning, is that you get access to the best possible opportunity for what you want. As a borrower, you have an ambition you want to fund—a project you want to do, whether that be financing on receivables, some Bitcoin collateral, some stocks, or whatever. We’re going to connect you with the largest amount of lenders in order for you to get the most competitive, most liquid terms.

In practice, it’s a piece of code that runs on blockchains that you can configure the way you want to accommodate any type of obligation you want between 2 parties. In practice, that’s the yield products you see in fintechs, like non-custodial savings accounts. When you take out a loan in a fintech, that’s Morpho behind the scenes. But it’s really about having this connectivity layer that unlocks the best possible opportunity for a given profile.

Yeah, tell me about Morpho Midnight.

The goal of Morpho is to do the entirety of credit. Credit is a $200 trillion market. You have a lot of different pockets: government bonds are a $100 trillion market, you have securities lending, consumer loans, receivables financing—you have a bunch.

Today, crypto only does crypto stuff. It only does crypto-backed loans, which is a very small market, approximately a $50 billion market, of which Morpho is already an important share. We need to get out of this. We need the entirety of financing to come on-chain, and Morpho Midnight is an attempt at that.

Morpho Midnight is a protocol that allows new types of obligations between parties. It turns out it’s an obligation structure that’s very similar to what you have in traditional finance. It’s based on a fixed-rate, fixed-term instrument that allows you to basically lend and borrow money like you would do on Morpho today, except this time you can control the rate.

That’s the basic principle. Obviously, there’s much more depth to it, but that’s the core idea: it’s basically an obligation structure that resembles TradFi and is fixed-rate, fixed-term.

Yeah, back in 2023, I want to say, Mike and I launched a new podcast called Bell Curve. The entire first season was on fixed-rate lending and borrowing and how it was going to be the next big thing. We were far too early to be talking about that, but I remember there was a lot of conversation. We looked at the history of it.

There was ETHLend, which then obviously turned into Aave. There was a company called Dharma—I think it was Nadav Hollander, who ended up selling to—I think OpenSea might have bought them. Voltz Protocol. There’s kind of a graveyard of fixed-rate lending and borrowing.

5. First Principles Beat Fast Execution

Why do you think you guys were able to pull this off? I’m assuming the sell for fixed rates has not been a hard sell. It’s a very obvious, natural evolution in this market, but there have been people trying to sell this for many years. Why have you guys been able to crack this and others have not?

It’s a great question. I think there was a product-understanding problem at the time, and there were some technical challenges and time-to-market elements that were hard to solve.

From a product perspective, it’s important to understand that, surprisingly, the reason we built a fixed-rate protocol is not to get the fixed rate; it’s to have control over the rate. That’s a slight nuance. We want to give the user the ability to set their rate, because today the rate varies according to an arbitrary formula. It’s a formula; it works according to some market conditions, but it’s arbitrary.

Whereas if you talk to large financial institutions that want to control their risk, they also want to control their rate. Control is really the key to everything. First, it was about understanding this nuance, because it informs the design you’re going to go after.

But then the second thing is, why do all of these projects fail, and why is Midnight built completely differently? A few things: back in the day, you had low liquidity and high gas. High gas means there are certain types of designs you can’t do because they’re just too expensive. Now chains have scaled, and you have this sort of Moore’s law for chains, where throughput is increasing every year.

The liquidity piece is about the set of participants that were directly interacting with the protocols. They were retail users. We’ve built retail products. When you think about Compound, et cetera, it’s all about abstracting complexity for the user. It’s all about managing the risk, managing the rate, and managing your liquidation parameters. We don’t let you touch anything; we’re going to do everything, just like a broker or a bank would do.

Morpho’s take is, if you want to scale, you have to let the smart participants in the market do that for you. This is why we started by modularizing the risk management. But risk management was not enough. The large institutions that we worked with were like, “We need to control the rate. We’re never going to subscribe to a formula that we haven’t chosen. You need to control that.”

So Morpho evolved into this protocol where we push complexity to the edges, and we have these more active participants, which we now call curators, but it’s the same idea. If you try to use Midnight as is, it’s very advanced. Most of the users on Midnight today are programmatic, and they’re all market makers that are plugging in and market-making. Obviously, you can take it on the front end, et cetera.

We had to build this ecosystem of smart participants that would build this abstraction layer for the end user to eventually be able to access fixed rates. Back in the day, no one had this sort of curator model. The key strategic advantage of Morpho is that we have this ecosystem of very smart participants, which, by the way, holds billions in funds.

Midnight is still not in the wild yet. It’s a switch we have to turn on in the protocol that we’re deliberately leaving off. We want to leave a lot of time for Midnight to build Lindy and trust, et cetera.

You know, at some point in the future, we'll turn it on, but it already has billions in liquidity available to quote on Midnight.

Who is the borrower, and who's the lender, for Midnight?

I mean, permissionless, I'd say it could be anyone to anyone.

Who's the customer? You build products to serve a customer segment. Who is the customer segment you were thinking of when you built Midnight?

Yeah, it's a lot of people. It's a bit like stablecoins. Stablecoins have a million use cases, right? Mostly, it's 2 profiles: the distributor and the operator. The distributor would be Robinhood, Coinbase—those fintechs. The operator would be the curator, like the crypto-native curator or the largest asset managers in the world, right?

So this is Apollo and Steakhouse.

Yes, exactly. That's the type of profile. But you need the product to be a good developer product, good infrastructure for them to be able to build a good product for the distributor. This is how you should think about it.

A DeFi protocol, in my mind, in 2026, is a developer platform that allows finance people to provide good products to fintech people, right? Midnight is going to be used—the bare-metal Midnight is going to be used by operators of the market in order to distribute it to—

6. Why DeFi Becomes Infrastructure

The big fintechs. Can we talk about this idea of DeFi becoming one big thing, or several layers?

Yeah, I love that.

When I look at it, I think Uniswap was probably the first to do this, right?

Oddly, I feel like when a lot of products develop, you're trying to strip away complexity. Weirdly, in DeFi, you actually kind of want to add complexity so that you can serve different markets and different customers.

So, Uniswap V2, right, you could market-make and take, or you could LP. You could do all these things as a retail user. Then V3 makes it a little more complex. You can't do everything; it's a little more complex. Then you have V4, where it's really just a small group that they're optimizing for.

I see you guys doing this, right? Even in the credit markets, you have, I would say, maybe Aave was the V1 here. Then you have Morpho Blue, where you're adding curators on top, and then actually Midnight I see as another layer on top.

How do you use that? Yeah, okay. Talk to me about your philosophy here.

Yeah, I think that's very intentional, and it's a very natural evolution. I love the Uniswap story. To your point, in V2, both the taker side and the maker side were retail. In V3, only takers could be retail. Makers had to be experts. In V4, you can't take at the protocol level as a retail user; you have to use UniswapX or an aggregator, and you can't market-make without another layer of abstraction.

I think that's very intentional for 2 reasons. You want to be able to accommodate users for their preferences, so that requires modularity. You can't have 1 size fits all, right? That's the first thing.

But then, once you have a lot of options—once you have 1 million V4 pools with different features—you need aggregators. You need layers of abstraction that are going to do the busy work of choosing or managing the operations, right?

So, in Uniswap V4, it's like an aggregator; in Morpho, it's a router. It's actually very close to Uniswap and Morpho in that regard. We also have vaults to make it a better product for people, for the borrowers. Now you also have routing on Morpho, etc. So it's 1 dimension by 1 dimension.

If you want it to be market-efficient, then you absolutely need to give it to the market. One way to think about why you absolutely need it is that, if you're truly serious about bringing credit on-chain, you want to underwrite 8 billion people, right?

If you want to underwrite 8 billion people, I'm not going to do everything on my own. I'm going to need tens of thousands of curators. Those are going to be banks, regional banks, asset managers—anybody that's going to source credit and underwrite the right people for their ambitions. It obviously needs to be tens of thousands of curators to do that work. It can't be all of us.

It's dystopian to think that, by the way, 1 entity would govern the entirety of what people are entitled to in terms of credit. I really think it's a dystopian future. It has to be the free market to get a fair price for everybody and to discover more of the people that don't have access to credit today.

Yeah. So, to extend this, I think when DeFi—you know, if you go back to DeFi summer—it was like, okay, Uniswap is going to overtake Nasdaq, right? It was the idea that these apps would proliferate.

The way that I am personally thinking about DeFi today is that the apps, the front end, actually don't matter that much. They're actually an extension of fintech. DeFi is doing what fintech never could do because DeFi didn’t rip up the rails.

So, DeFi, in my mind, what it ends up becoming—and what it's starting to become—is just infrastructure, like financial infrastructure. I'm curious: if in 5 years 1 billion people are using Morpho, but nobody's ever heard of the Morpho brand, or nobody's ever gone to Morpho's website except your typical B2B buyer, is that a success for you?

I think so. I think people will still have the same perception of Morpho that they have of Visa today. That's my goal.

We want to be understood by the customer: if an earn product or loan product is powered by Morpho, you want to have the confidence that you're going to have access to the best opportunity for a given risk profile.

It's obviously not a guarantee that you're never going to lose money. Such a product does not exist. It's not about that. It's about, when you use Morpho, you're connected and you're going to have the best opportunity. I want the consumer to understand this, right?

I think the brand will still be visible to the end consumer, but that is, to your point, mostly about hiding the wires. It's like Visa. No one really understands what Visa does. As a consumer, they see the Visa logo, but they don't understand what it is, and they don't need to fully understand. They just need to know that it's going to work, right?

It just needs to be an expectation that you have a Visa logo. That's the only thing. So I think this is the same aspiration for Morpho.

Crypto is just infrastructure. Crypto as a product is speculation. This is the only use case, and it's not that interesting, as we all know.

I like to think we've also been early in this. I wrote a few articles 3 years ago saying that DeFi should be infrastructure, and not decentralized brokerage platforms, but protocols like the internet.

So, yeah, that's always been the path we've taken, and this is why we've been introducing those layers, etc.

Why do you think you guys were able to have such a meteoric rise when so many other people who were trying to do similar things did not? This is almost sometimes an obnoxious VC question, because you're like, “I don't know, we just out-executed people.” It's a little less exciting than you think it was.

Was it an execution game? Was it that you got the technical infrastructure right? Was it a BD game? Why did you win here?

So, first, I should say we are very far away from winning, because to me, winning is—

How have you been able to do so well, I would say?

Yeah. I mean, relative to the rest of crypto, we have, obviously, but truly winning is only once we have a majority share of the credit on-chain.

Anyway, to answer your question, I don't think it's an execution game. Morpho, we ship a protocol every 1 or 2 years, right? It's a very slow execution by nature of the protocol being immutable, etc.

Funnily enough, in tech, it's a lot about a lot of iterations all the time: ship V1, then V1.1, go to market, ship another version, etc. In Web3, you can't really do that, and you should not do that, because it's finance, right?

Finance is the opposite. You need trust, you need Lindy, it's slow, and you need to build a reputation that compounds over the years.

So, I actually think direction matters more than execution when it comes to crypto. Direction comes from first-principles thinking. Direction comes from asking yourself, “Why are you doing what you do?”

It's not because everybody is doing something like buybacks or having a token and equity that you should do the same. You have to challenge yourself to understand why. It's not because you have a lot of craze in crypto, etc.

I think what made the relative success of Morpho at the time was that we really asked ourselves a question. When we do something, we know why we do what we do, right? It's really based on first principles, and that makes us—sometimes we don't pump with the trends because we don't do that.

We don't do all those things, but we follow first principles and know why we do what we do. That's a long-term game, and it compounds, right? Because you can only ship a thing every 2 years, the thing you ship must be in the right direction.

7. Building Crypto’s GTM Machine

If you don't get hacked and you close those partnerships, the trust flywheel appears. That's my take, at least, or my awareness of how we've gone so far. But again, I will say it's still the vast minority of the journey. The vast majority of the journey is still to be had, and I genuinely mean it: the fun part is going to start now.

I agree. I completely agree. What have you learned about—okay, so if you're only shipping a new protocol here once a year, once every 18 months, BD becomes extremely important. What have you learned about BD from doing Morpho?

So many things.

I'd also be curious how sales and BD run internally. Do you treat it like—you know, on one hand, let's say there are crypto protocols from years ago that refused to hire even 1 salesperson. I think of Cosmos when I think of that—sorry to the Cosmos folks. I just remember having a conversation with them: I was like, “You need BD people.” They were like, “We refuse—the best tech will win.” I was like, “No.” Anyway, that’s one side of the spectrum. The other side is SaaS, very B2B and buttoned-up. You have a BDR or SDR who drives to an account executive, who drives to a customer success manager.

How do you even structure your sales team, and what have you learned about sales?

So many things. I think that was probably the function—I’m super lucky to get to work in every aspect of Morpho. I've done protocol engineering and design. I've done product, marketing, operations, finance, and so on. But GTM is probably the function that I underestimated the most in terms of how big of a science it was.

Building a good GTM team that actually knows how to bring the product to market is a beast. Building the organization that allows your product to be known, integrated, and grown throughout the market is absolutely insane. So, I think the first thing I learned is that it was actually an art—an art that you learn by doing. Over the years, there's a reason why all the best sales leaders have 10 or 15 years of experience: it takes time to learn.

You have an audience of 1, my friend. I'm asking the questions that I am. We're evolving sales here. I'm constantly evolving sales here.

I think another thing I learned is that what we call sales is BD in the traditional world, and what we call BD is extremely high-touch BD in the SaaS world.

What I mean by this is that crypto doesn't have so much repeatability yet. There are still bespoke deals for every single partner. It's starting to get to the point where we have a critical mass and can start having sales and repeatability in the different products you sell, but the reality is that a lot of the deals are still hand-to-hand combat.

You have to figure out what the person needs, and there's still such a gap in understanding, but also in the technical stack, between the integrator and you. You need the GTM person in the middle, bridging the 2 worlds, to be extremely technical and deep in understanding their technical requirements, what our product offers, and how to match the 2.

It's not easy to find people who have the relationship skills, the GTM grit, and all the things you want in sales, but who also have this depth about the product and are able to do the matching I was talking about.

I think eventually this will change. I think this will only be true for new markets, like bringing in the newest categories that we need to bring in. You need those highly trained assassins who can deploy in those large companies and explain to them how to move on-chain.

But as we win some category leaders, like Coinbase, Robinhood, and others, that's going to inspire a lot of people, and they're going to be able to do the work on their own and meet you where you are, right? Because they've seen Robinhood do it, they're like, "We should probably do it as well."

They're going to get ready, and by the time you meet them, they're already ready. Instead of having a BD person, you can have a salesperson. They can just show that they understand the need already, and they have a perfectly repeatable GTM process and product that they can ship and sell extremely easily.

The space critically lacks GTM talent that has the experience and the crypto knowledge, because in order to sell well, you need both. I know that because I've been hiring GTM folks for 6 months, and I've interviewed the entirety of this industry. I'm always very frustrated in general, but we're getting there. We're getting there.

I'm hiring GTM people.

When you say GTM people, who do you want? Do you want a seller, a BD person, or a growth person?

At the moment, we're hiring everything. Everybody has a different name for everything. We have our definition of partnerships, our definition of account growth, sales, and so on.

What I'm looking at at the moment that's public on our website is people who can grow existing accounts. We have existing integrations that are big. How can we grow them? How can we make them more successful?

Another would be that we have all these fintech leads coming in, and today we don't have the capacity to handle all of them, so we need more BDs on the fintech side of things. We have TradFi institutions, right? So we're looking for a head of institutions to work with us, and so on.

Yeah.

So, yeah.

Nice.

We're also looking for someone to lead the entire engine.

Like a chief revenue officer?

Kind of. I call it head of GTM because I like humble titles, but—

It's kind of that.

Yeah.

Yeah. Nice. I imagine it's easier, or easier-ish, to sell into Coinbase or Robinhood because they're actually decently familiar with what it's like to work with crypto protocols. It's extremely tough to sell into a regional bank that has, you know, their youngest engineer is 55 years old.

How do you even sell? Why do they need you? What are you selling to them, and what does that sale look like?

You mean the regional banks specifically?

Yeah, just the more traditional capital markets players that have never done anything on-chain.

I think the first thing that I also learned the hard way is that you want to meet the customer where they are, right? You don't want to be the one that does the heavy lifting just for them. There's too much risk involved, and you're a startup. If you don't move fast, you die, right? You need to respect that.

In some strategic cases, you can invest the time over multiple years. We have some of those partners—I can think of 3 or 4 of them—that we've been working silently with for years, proof of concept after proof of concept, just to build a relationship.

It creates such an advantage to build that relationship and education within the team, because you can forge their understanding in a way that benefits you. Obviously, what you built is also what you think makes sense. It's not like—

Except in those rare cases where you can afford to have 1, 2, 3, or 4 bets, I think generally you don't want to spend any time with people who aren't in crypto at all. There are enough people who are interesting, who are meeting us where we are. We want to address them first and focus our energy there.

8. Scaling Morpho Without Losing Direction

If anything, you start with marketing for those people—educational content that scales—but you don't spend one-to-one time. You're only broadcasting.

Yeah. What have you learned about scaling a company? How many people are at Morpho right now?

80, maybe a bit less. 75.

Yeah. Blockworks has 75 or 80, right? 75-ish right now. 79, I think, is the right number. So, similar scale to you guys in terms of company size. I can maybe empathize with some of the people and scaling problems that you might be going through.

What have you learned about scaling a company, and what have you found to be the unexpected challenges?

I saw Merlin reading a book on scaling people. I think it's really—

From Claire—

I just—I don't know Merlin very well. I know you better. I've met Merlin at D [?] a couple of times, but I just thought, "I know what he's going through right now, reading that book."

Yeah, so.

Yeah, no, Claire’s great. She’s in Morpho, by the way. But I guess, to me, scaling—the 2 things I’ve learned are that you have to think about your company as a vector, which is the vector sum of all the people that compose it, right? Your job is to define the direction of the vector, and you have to maximize—I don’t know the English word for that—the size of the vector, basically the intensity, right?

What does that mean concretely? You need to define the purpose of what you’re building. I think that’s the key thing I’ve learned: You need people to understand why Morpho exists. That’s the single most important thing. When this is clear and laid out, you have to connect it to their job, right? Why Morpho exists, what is the product that helps you achieve that mission, and what is the org chart that is built to build that product that achieves the mission, right?

I think scaling comes down to 2 things: defining the why and defining the how. The why is the direction, the mission—making it clear to everybody and making sure they connect in their heads how their job is going to impact the mission—and building the org chart around it. It all comes down to the why, right? Then the second thing is the operating principles that people should follow in order to achieve that.

The latter is harder to define because you only discover it along the way. It also stems a lot from your own personality as a founder, I feel.

That’s what I was going to say. The founder knows that deeply. I’ve found—I think Mike and I have a very deep philosophy of how to build a company, but we didn’t realize that was a personal philosophy of ours. And so you have to, over the years, realize that this person isn’t working out, but they might work perfectly at another company. So you have to spend a lot of time actually defining these things.

Yes. I think it matters. Every week I have 3 or 4—maybe not 3 or 4 these days—meetings with people in Morpho individually. So I meet with everyone individually every now and then, and one of the questions I like to ask is understanding what is different in Morpho compared to the other companies they’ve worked at. This helps me understand better how we operate.

Once you can name it and describe it, then it’s easy to run a process to hire people, because you can look for those character traits that are going to work as a group. And honestly, you have to come back to it all the time. I come back to the operating principles that we have and how we operate every 2 months or so. I edit a little sentence, a little thing here and there, as I understand it more myself.

As soon as you have the why and the direction, and you have the how, which allows you to scale that vector, I think that’s the key recipe. It looks a bit abstract when I describe it like this, but it truly is what it is.

I don’t know. I know exactly.

Yeah, but yeah.

You guys raised $175 million. Why raise that much money? I think a lot of the capital in the large fundraises right now is going into hardware and robotics—atoms, not bits, physical goods. I think a lot of people believe that the days of raising $175 million for a software company peaked in 2021. So it’s pretty rare to see software and code raise $175 million outside of AI. I’d be curious why you raised $175 million.

It’s a great question. I think the answer is that we’re not a software company. We’re a network company. Morpho’s code is valueless. It’s open source. Anyone can copy it. It’s out there, et cetera. What has value is the network, right? It’s the ability to connect all the lenders with all the borrowers.

In the same way, I’m sure Visa’s code is not valuable, right? It probably was built 50 years ago—Visa and everything. So it’s not the code that makes Visa valuable. If anything, it’s the opposite, right? They all know they need to upgrade and everything. It’s more about their connectivity, their distribution, right?

If you look historically at the best businesses, usually the best defensibility is when you have deep enterprise integration and network effects. It turns out Morpho has both, right? It’s a network whose edges are deeply integrated into customers and enterprises. The more people join, the better the product becomes, to the point where our customers want Morpho to be successful. They need the network effect so badly that they want more lenders and borrowers in Morpho in order for the rates to be better, for it to be more liquid, et cetera.

If you reach that stage, that’s precisely what makes you a network business: when the value of your product grows superlinearly with a linear increase in the size of your set of participants. If your customers realize that they help you grow, right, Morpho is in the unique position of being in both of those categories at the same time, which makes it a very compelling, investable project.

In terms of the size, what we’re going after is huge. The entirety of the credit market is $200 trillion. Obviously, if you only look at conquering the crypto lending space, that’s not even worth investing in, to be frank, if I’m being completely honest, right? But if the ambition is to go after TradFi and asset managers that hold tens of trillions of dollars, you better have a lot of capital, right?

I think eventually we’ll raise so much more. The honest truth is that we’re so far away. We’re probably going to raise so much more in the future. I don’t know when, et cetera. But if the ambition matches our execution, we should, because otherwise there’s no chance we’re going to be able to disrupt TradFi.

Do you guys have to play the incentives game in the same way that chains do? I was talking to one of the new corporate chains yesterday, and they said, “Look, we thought we wouldn’t have to play the same game because of our brand, but we have to. We want this huge Fortune 100 company to come onto the chain, so we’re giving them a lot of money to come on. That’s just the game that is played right now.” How do you think about doing that?

Yeah, it’s a good question.

I think there are obviously 2 things that don’t let you play the incentive game: brand and product differentiation. In order not to play the incentive game, you should not be comparable, right? It’s only when you’re not comparable that a distributor can’t squeeze you for more money by putting you into competition with other people, right?

If you take lending, for example, Earn as a product in TradFi is a pretty bad business. There are 3 dimensions: Is your product safe, liquid, and high-yield? Everybody is comparable with one another. You could use one or the other. You could make an argument that one is safer and it’s high-dimensional, so it’s hard to argue, even though they got hacked or whatever.

It’s the same in TradFi. You have a bunch of money market funds. Honestly, what’s the difference between the money market funds? What the hell, right? So their fees are super compressed, and rightfully so.

What does that mean? It means you have some products that are highly undifferentiated, in which case you have to play the incentive game. And you have some products that are highly differentiated because you’re the only one that is immutable and gives you control, or the only one that lets you play with programmable compliance, with a wide set of collateral, with fixed rates, with all of those things. Or because you have the deepest liquidity, et cetera—in which case you don’t have to play the incentive game.

With that in mind, you have to put forward the product differentiation. It’s kind of obvious business tactics, but it’s what it is. In some cases, customers care about those things, and you can make it hurt. In some cases, they don’t, in which case you play the incentive game.

9. Where Morpho Grows Next

Yeah. Who are the dream customers for you today? Is it the exchanges?

We’ve kind of already won all the exchanges, I feel like. We’ve integrated everywhere. Obviously, we could grow more of those integrations. Some are just wallet integrations and not main exchange integrations, et cetera. We’re going to announce more.

I think this is the easy lead that we can do right now, and it’s an ICP that we have and that we go after. Fintech is obviously the new category. When I say fintech, I mean people that are not crypto exchanges. I think the leader of the category is Robinhood, and winning Robinhood obviously had a tremendous effect on how we’ve been working with others.

I don’t know if I have a dream customer that I don’t feel like we’ve won already or that we don’t work with. To me, it’s more about making sure we can have a high number of customers to drive stronger network effects. That’s what keeps me up at night more than anything. But I don’t have a dream customer—nobody comes to mind, to be honest.

Do you care more about the market—the borrower side or the lender side? What’s the inhibiting factor to growth?

It’s a question I get asked a lot. I have a lot of thoughts about it. Some parts I keep for myself because I want to keep some edge. But yeah, I think both are important in different ways. You can adopt very different strategies to grow one or the other.

The easy answer is that it depends on the interest rate. Whatever side is missing, you need a more attractive interest rate, and there exists an interest rate at which the other side comes, right?

So, over 3 months, 1 side is going to be very constrained, then it’s going to be the other, then the other, etc. So it constantly changes.

That was a vague answer, Paul.

It was intentional.

Yeah, that’s fair. We can move on.

Back to the BD side: the thing that struck me when we were in Japan together is how much you travel. I don’t know if this is constant, but it seemed like you were on the road for 2 months or something. It was Japan, Singapore, San Francisco, New York, Miami, and London, I think, and all these different places. How do you think about the importance of being in person for sales?

It’s important. I think there are probably 3 reasons: when you have an educational gap, when you have a cultural gap—it’s important culturally. I’m thinking specifically of Asia; it’s super important to be in person in Asia. And when people need to trust you, because I think all of those, at the end of the day, come down to 1 thing, which is trust.

Those people, at some point, need to take a leap of faith, and you have more information than they do. You understand this thing more than they do. They’re taking risks for their careers. It’s a bet for their career as an individual, usually, because they’re leaning into the crypto space. If we blow up, they blow up, right? That type of thing.

Or if they’re the CEO of the thing, they won’t be fired, but their investors will replace them or their business will go out of business. So I think this is a very unique marriage between tech and finance where you need trust.

There’s a reason the tech bros don’t care about being in person too much, but the finance bros care: finance, at some point, has a trust element to it. You’re going to give money to someone, and they can fuck it up. It’s too high-dimensional for you to control everything.

Whereas tech is very asynchronous communication. It’s fast, and you can control every dimension of the product. That’s not the case with finance, very fundamentally. So I think you need to do that.

I personally don’t like it that much. Strangely, I do it a lot. It’s not the most enjoyable, but I think it’s useful. This is why I’m doing it.

Yeah. I’m very curious. You have a better view into the vault market than nearly anybody, and there’s a very interesting subindustry developing here with Morpho, Veda, Sentora, and Upshift, and the curators like Gauntlet and Steakhouse. There’s a whole subindustry developing.

Let’s look at the chart of curators right now with vault deposits on Morpho. You’ve got Gauntlet at 18%, Sentora at 15%, and Steakhouse at nearly 50%. How do you think this ends up developing 1 year from now? Will it still be Gauntlet, Steakhouse, Spark, Sentora, and these guys, or will it look very different?

I’m not sure. I can tell you what it looks like 20 years from now—maybe not 20 years, but 5–10 years from now: a very wide set of vault curators, in the same way you have a lot of banks today.

I think the reason you have a lot of banks today is that you need to source credit. You need to source the borrowers. You’re going to need that bank in that village in France for the financing of the houses of whoever lives there, or the bakery, or whatever. You can’t have a single entity do it all. Purely operationally, it doesn’t scale.

That’s where I think it will eventually be. I don’t think it’s a winner-take-all market for that reason, unless the size of the market is constrained. If we stayed in crypto-backed loans only, maybe 1–2 years from now the market could concentrate in a single curator.

If that was what I believed was going to happen, I would have built more as a curator. This is not what we’ve done, and the reason is that we think the market is much bigger. We think we’re going to need many more curators than we have today in order to address the entirety of the market.

We’re going to have geographically localized curators. We work in Korea, Hong Kong, Japan, and Singapore. We need localized curators to understand the risk profiles of those people.

I’m just looking at your interest accrued. You guys had 40 million in Q2, 34 million in Q1, and 54 million in Q4 of last year. I think Q3 of last year was your biggest quarter: 58 million.

So right now, I think I’m getting this: you guys don’t actually have protocol revenue. You have zero protocol revenue, right?

Yeah. 100% of the interest in the base yield passes directly to the supply-side participants, like the lenders and liquidity providers. It’s not retained as treasury or token-holder revenue.

When do you expect that will change?

It’s a good question. I think what I’m interested in is growth. The question is, how do I have growth? When you take fees, you face a trade-off: is the amount of revenue you’re going to charge going to slow down growth? That revenue could be employed in such a way that triggers more growth.

So you have to solve this equation: when you take revenue, should I slow down my growth by taking fees, and should those fees be able to compensate for the loss of growth?

The answer is that we’re not constrained by capital today at Morpho. We’re constrained by my ability to scale the company. It’s basically hiring, getting the right people in place, building the right processes, and everything. We’re more execution-constrained than we are capital-constrained.

Once we solve that bottleneck and the capital constraint becomes a constraint, then the question is valid. That’s not the case today.

Do you have a mental model of when this happens? When we hit this many deposits, or when we hit—

It’s a very high-dimensional question, so I don’t have a specific timeline in mind. But it will come down to the thing I asked: will this trigger more growth than it tempers growth?

Yeah. That makes sense.

Again, that comes down to the fact that we’re ambitious about the size of the market. If we thought the market was only crypto, we would probably be doing buybacks by now because we’d be done with the mission. We wouldn’t know what to do with the money.

I’ve always hated buybacks because it tells me that the founder has nothing better to spend the money on.

Exactly. Exactly. But it probably is the case if you think you fulfilled your mission. If your why is building a crypto bank, then you should do buybacks, right? You’re done. It’s over. You’re finished. You don’t know what to do with the money. There’s nothing to grow. Your mission is over, so do the buybacks.

Your mission is not over at all. Morpho’s mission is not over.

I totally agree.

10. Midnight’s Path Beyond Crypto Credit

You need to hire, do a bunch of things, execute, and spend.

Yeah. I totally agree.

When you launched Morpho Midnight, there were a couple of zero-to-one features that you guys built in there, or primitives, we could call them. What do you think, when you look beyond Morpho Midnight? I’m assuming you’re living 12–18 months in the future here. What’s the next kind of zero-to-one thing that you’re working on?

Midnight?

Yeah.

I think the market is not ready for what Morpho Midnight already is. I think it is multiple years in advance of—

Yeah. When did you guys launch Morpho Blue? 2023?

2 years ago. 2 and a half years ago or something.

Yeah, 2023 or 2024. Okay. So, very early. Morpho Midnight isn’t even fully live, basically.

Yeah, it is. We just released the core engine.

Right. Right.

You can already trade on it. You can already post offers, but the vast majority of the features aren’t released yet, and we’re going to release them progressively. We’re going to take our time.

There’s a lot you can do already with Morpho Midnight. You can take some fixed-rate loans, but it’s a beast of its own. It has a lot of callbacks, gates, routing, and so on.

I think it will take us very far for 2 reasons. The easy reason is that people want to fix rates; consumers are more interested in fixing the rate. But again, that’s not the most important thing.

The most important thing is that we’re going to allow those curators to set the price. Setting the price is so important because, as soon as you can control the price, you can fully control the risk and start underwriting anything, including things that are abstract.

That includes identity, payment receivables, and all sorts of proof of credit that you want. If you trust it, you can give it a price. Before, you couldn’t do it because it was a formula. But now, as a curator, if you want to operate as a credit fund, you could potentially say, “Hey, I want to do some undercollateralized loans, and here’s why I trust this person and here’s the price I give them.”

One thing I was thinking about for you guys, Paul, after one of our conversations a couple of months ago is this: If you’re going after all of credit, so much of traditional credit relies on the credit score. This is another primitive that’s been talked about in crypto: Can you have some sort of new credit score on-chain based on whatever history you may have—your on-chain trading history, or how many times you got liquidated? How do you think about that? Is that something you could go after in a couple of years?

I don’t think we would go after it. I think we will allow people to express their creditworthiness in whatever shape or form they want, and Midnight will price it. Basically, Midnight is the engine. As a borrower, here’s how you should think about Midnight and Morpho’s direction in general.

As a borrower, you come and say, “Here’s the money I want to borrow, at what terms, and here’s why you should trust me.” The reason you should trust me is a module, right? That could be a big stash of Bitcoin that can be liquidated by an oracle, but it could also be your identity. It could also be your credit score. Whatever thing you think is going to make you more trustworthy, you put it in there, and then the intent network of Midnight—the curators—is going to assess it and give it a price.

It’s competitive, so you’re going to get a fair price. That’s the world. That’s the whole point. This is how you do undercollateralized lending on-chain, by the way.

Yeah.

Obviously, as there’s more footprint and data on-chain, you can construct on-chain-native credit scores. You can infer them from your activity on-chain, et cetera. I don’t think you would be the one building this, but I think it’s a great—

Great.

Great opportunity that will be highly valuable, by the way. All those Web3 identity primitives were too early because there was no business case. I think MetaMorpho is going to give them a business case, because if you’re going to be able to show your identity, that’s extra trustworthiness, and MetaMorpho is going to price it.

You’re going to have a quantifiable value for having your on-chain identity, because you’re going to get a better interest rate and a better funding rate. This is something you can charge for as an identity primitive.

Yeah. How long, Paul, until I can get a 30-year fixed-rate mortgage through Morpho?

Hard, hard, hard. Highly dependent on AI accelerationism. I would say that anything you project a year from now is hard to say. Thirty years is a long amount of time. I don’t think we’re going to have any 30-year bonds in the next year, or even 2 years from now. I don’t think that would be realistic to say.

What’s the inhibiting factor? What would unlock that?

It’s not that it’s not possible. It’s that I would not want to spend time and energy on 30-year bonds. I prefer short-term stuff because I can iterate and learn. If we focus on the short-term stuff, I can do more, learn more, and improve more.

Obviously, we’ll get to the 30-year stuff, but I’d rather learn a lot before getting into something that’s going to be immutable. Can you imagine an immutable protocol that issues a 30-year bond? Maybe I’m dead in 30 years. We don’t know. So maybe it’s the selfish thing of, “Hey, I want to do more stuff before launching this borrowing 30-year bond.” But we’ll get there. We’ll get there.

11. Agents And The Regulatory Frontier

Yeah. Yeah. I mean, the reason I ask is because mortgages are the most popular loan in America, right? It’s the most popular and largest source of debt in America. It makes up around 70% of consumer household debt. I think it’s a $13 trillion market.

Student loans are huge, auto loans are huge, and personal loans are huge, but I think mortgages make up around 70% of consumer debt. At some point, Paul, in a couple of years from now, is the marginal new borrower on Morpho a human or an agent?

How long did you say?

Let’s call it 3 years.

Man, that’s so hard. The thing is, in my mind, anything that’s beyond 18 months is so hard to predict. The AI factor can change so much. It could also not change much, but it could change so much. There’s a 50% likelihood that everything diverges in one way or another, at least in some parts.

I think there are 2 ways to think about it. Is this going to be agents that operate on behalf of humans for user-experience reasons? I don’t think it’s entirely clear to me that the agents themselves would take the position. I think it would still be humans. It’s still going to be the owner of the capital that takes the majority of the market, and I think the owner of the capital 18 to 36 months from now should still be the human.

However, if we’re saying that the agents themselves have such a level of agency that they can hold money—not just purely for operational reasons, like how we think about agents holding money today, because they’re operators at some point reporting to a human—then it’s different. If you think of them as self-sufficient entities that generate wealth and grow their wealth, et cetera, and we’re at that point where we have agents that have this, then if they’re proper owners of capital without reporting to anyone, the majority of the market should be like this. As soon as you cross the chasm, it feels like everything would be like this.

Yeah.

So, yeah, in the meantime, it feels like it should be a minority, in my mind, mostly for operational reasons, until they own the capital.

Paul, anything we didn’t talk about?

A lot of things, but I think that’s a lot.

I have actually one more. What do you think of Hester Peirce’s vaults statement?

I think it was very thoughtful. I don’t know if you read the full thing.

I did. Yeah.

I’m just grateful in general that they take such care and precision in their work. They clearly understand what’s going on. One of the most important things she stated is that a vault can be a lot of things, and they have to distinguish between different categories of vaults.

I think that’s the most relevant statement you could make, because obviously what you care about as the SEC—the Securities and Exchange Commission—is whether some things are securities. In order to do that, you need to understand how much agency the operator or curator of the vault has over the funds, how much trust there is in the relationship between the user and the vault, and what different investor-protection mechanisms are at play.

When you look at vaults, there’s a whole spectrum. On one end, it’s fully on-chain with a lot of time locks, and the user is fully in control and can exit at any time within the limits of the time locks. On the other end, it’s a vault that is basically an ERC-4626 adapter that deposits into a Fireblocks wallet, and that Fireblocks wallet is going to manage the money—which does look like an investment adviser, right?

I think drawing the line is going to be the hard work to be done. I think they’re working on it, and I think they approach it the right way. They’re very first-principles in their approach, which I like.

I just spent a week in Washington, so I got to understand a world I hadn’t spent too much time in before—policy. Now I understand it a little bit better, and it’s been very interesting.

Yeah. Yeah. I was in D.C. last week, and Morpho actually came up a couple of times, so that was interesting.

Oh, okay. Interesting.

Yeah. Yeah. Yeah.

Hope in a good way.

In a good way, my friend. In a good way. Paul, always good to see you, man. It’s very cool to see how quickly you guys are growing, and I’m rooting for you.

Thank you.

Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Block Works team may hold positions in the company's funds or projects discussed.