Gauntlet: Morpho attracts long-standing Aave partner

This is what's known as a "great catch". A few days after severing its relationship with decentralised lending platform Aave, risk management company Gauntlet has announced that it is joining rival Morpho.

The British firm will be responsible in particular for Morpho Blue, the new iteration of the protocol launched in January. It already has more than $1 billion in assets under management.

The transfer from Gauntlet is a small event, as the New York-based company had been working with Aave for four years. In a post on Aave's forums on 21 February, Gauntlet co-founder John Morrow said his company was ending the relationship because his team was "struggling to navigate the inconsistent guidance and unwritten objectives" of Aave's "largest stakeholders".

Gauntlet is a key player in decentralised finance (DeFi). Its risk management services are used by several of the largest crypto protocols and decentralised autonomous organisations (Uniswap, Compound, Maker, etc.).

At Aave, Gauntlet oversaw the platform's risk levels, provided regular updates to the Aave community and manually set certain lending and borrowing parameters.

Exacerbated competition

This arrival comes against a backdrop of growing rivalry between the two entities, with Morpho Blue aiming to replace Aave in some way by allowing anyone to create lending and borrowing markets with their own identification and risk parameters.

Aave, which is one of the historic players in DeFi with $9 billion under management, imposes the proposed markets (via its governance) and does not allow liquidity pools to be parameterised. This may be a limitation when it comes to scaling up its model for institutional players, who require different rules, particularly when it comes to authorising users. Its "Aave Arc" initiative, aimed at institutional players and presented in 2021, has not been as successful as expected.

"With Morpho Blue, it is possible to block access to people who have not been validated by the creators of the liquidity pool," points out Paul Frambot, co-founder of Morpho Labs, the French start-up behind the Morpho protocol.

Gauntlet will in particular be responsible for assessing the risks for some of these pools or markets. The system proposed by Morpho Blue is a major change at a time when the lack of traceability and identification of investors are major obstacles to the arrival of institutional investors in DeFi.

On the Aave side, they explain that they are not surprised by this departure. "Gauntlet will make more money working on Morpho Blue than staying with Aave, we understand the logic," says Marc Zeller, head of Aave Chan Initiative (ACI), an important structure in Aave's governance. "This arrival enables Morpho Blue to attract a well-known player at a time when the bull market is approaching. But today, this protocol still generates little revenue and has yet to prove itself," he concludes.

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