Contango x Morpho Blue
Morpho Blue has isolated markets, where new exotic assets like Pendle’s PTs and LRTs can be used to loop via Contango at high leverage.
Disclaimer: the information below is provided for informative purposes only and should not be considered financial advice. Leverage trading carries significant risk. Do your own research.
Summary of the Morpho integration
Contango is launching new perps powered by Morpho Blue, with better rates and higher leverage.
- Type of money market: variable rate, isolated markets
- Audited: yes (Cantina Contest, Spearbit, Open Zeppelin)
- Chains: Ethereum
- Available pairs: 2 at launch
- Rewards offered: none
What is Morpho Blue?
Morpho Blue is a new trustless lending protocol built by Morpho Labs, the team behind the well-known Morpho Optimizer.
Morpho Blue is an entirely new protocol that enables the creation of immutable lending markets in a permissionless way, externalizing risk management from the protocol.
Instead of relying on governance to list assets and manage parameters, Morpho Blue is designed to leave choices up to the users, enabling them to create markets with any loan asset, collateral asset, risk parameters, or oracles. Different third party entities (e.g. MetaMorpho) can also handle risk management on behalf of the users, allowing them to deposit into lending vaults that supply directly on Morpho Blue according to different risk parameters.
Importantly, Morpho Blue provides customizable and higher loan to values (LTVs) than any other lending platform which means traders have access to greater leverage.
To begin, Morpho is listing the following assets, with predetermined liquidation loan-to-value (LLTV) ratios depending on the collateral used to borrow them:
- USDC (with stETH as collateral) at 86% LLTV
- ETH (with stETH as collateral) at 94.5% LLTV
These are currently higher than other well-known defi markets, like Aave and Compound. Hence, Contango is able to offer higher leverage on its Morpho pairs:
- stETH/USDC pair, with up to 6.15x leverage (32% more than Aave)
- stETH/ETH pair, with up to 12x leverage (̶2̶6̶%̶ ̶m̶o̶r̶e̶ ̶t̶h̶a̶n̶ ̶A̶a̶v̶e̶)̶ Aave has now increased LTV ratios and allows 13.8x.
At the time of writing, trading the stETH/ETH loop on Morpho has an annualized ROE of 43%, higher than any other market.
In the future, if new pools are spun up with higher LTV ratios, Contango can offer the same pair (e.g. stETH/ETH) with different leverage ratios to cater for the different profile risk of traders.
It’s worth noting that, given the architecture of Morpho Blue, the collateral supplied is not rehypothecated like in other markets like Aave, so the funding rate on Contango won’t have a lending component in it to offset the costs of the borrowing side. However, the Morpho Labs team has launched Morpho Blue with stETH markets, and stETH is a yield bearing asset which indeed offsets some of the borrowing costs for traders.
For a recap of how Contango works and integrates with lending markets, see this introductory article.
For a recap of how Morpho Blue work see Morpho docs.
Morpho tokenomics and rewards
MORPHO incentives have been offered in the past for users of Morpho Optimizer.
With the launch of Morpho Blue, new markets will also be incentivized but only for lenders, so Contango traders cannot accrue rewards for now as the collateral deposited for borrowing is not incentivized with any token.
Morhpo has not unveiled any detailed tokenomic plan but refers to MORPHO as a governance token. Interestingly, MORPHO is un-transferable at the time of writing. Only a DAO vote can turn on transferability anytime.
Read more on Morpho tokenomics.
About Contango
Contango lets you loop anything on-chain. You can create leverage (re)staking positions, arb rates differentials, farm points, or simply go long or short like a perp at low funding. Ape in like a degen with 1-click Strategies, or trade like a pro on the sleek Trade interface.
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About Morpho
The Morpho Protocol is a decentralized, noncustodial lending protocol implemented for the Ethereum Virtual Machine. The protocol had two main steps in its evolution with two independent versions: the first protocol was Morpho Optimizers which improved the rates of Aave and Compound through peer-to-peer matching; Morpho Blue is the latest protocol that is designed to serve as a trustless base layer for decentralized lending.
