The decentralized finance protocol Compound is moving forward with its initiative to integrate with rival Morpho by launching new lending vaults on the Polygon network.
The new vaults became operational on March 13 at 11:30 a.m. Eastern Time.
This development follows a governance proposal that was designed to introduce Morpho (MORPHO)-based vaults to Polygon (POL). Gauntlet and Compound (COMP) are unveiling these new lending vaults with a total of $3 million in incentives, equally funded by Compound and Polygon at $1.5 million each.
This move has sparked considerable discussion among COMP holders and within the larger DeFi community, highlighting a crucial transformation in the decentralized lending ecosystem. In essence, Compound is shifting away from its own technology stack to embrace Morpho’s framework, marking a significant evolution in the DeFi realm.
Paul Frambot, co-founder and CEO of Morpho, referred to this development as a “full-circle moment.”
“We’ve returned to the beginning with Compound opting to build on Morpho. Morpho started as an optimizer built on top of Compound before advancing into an independent lending primitive. Now, Compound is moving to construct on Morpho,” Frambot emphasized.
Earlier in January, Gauntlet put forth the proposal for the new lending vaults on Polygon, viewing the partnership as an opportunity to enhance risk management, expedite asset listings, and establish a viable future for Compound.
It is noteworthy that Compound has experienced a decline in market share as both Aave (AAVE) and Morpho continue to expand, with Aave’s v4 upgrade anticipated to further diminish Compound’s revenue and market footprint.
Using Morpho to generate yield, a method criticized by some, is seen as a way to benefit COMP holders according to the governance proposal.
Compound plans to utilize Morpho’s lending infrastructure alongside Gauntlet’s risk management strategies and the low fees and rich liquidity provided by Polygon’s PoS to redefine the on-chain lending environment.
Morpho, which secured $50 million in a funding round supported by Coinbase Ventures and a16z in 2024, currently holds a total value locked of over $3 billion. In comparison, DeFi giant Aave boasts a TVL exceeding $17 billion, while Compound’s total value locked stands at $2.3 billion according to DeFiLlama.