Morpho CEO: Vaults Are The Next 100x In Asset Management (Institutional Appeal)

Transcript

Paul, welcome to the show. >> Hey, thanks for having me guys. >> Good to see you, buddy. Um, big launch for midnight, big big months for Morpho and the vault complex awareness as a concept. I feel like we we kind of call it as part of our big four. We got stable coins, tokenization, pers, and vaults. These are kind of exports of this industry that you know from the investor perspective it seems like investing in these trends is like a multi-deade or at least a decade long kind of mega trend. Uh there's a lot of opportunity for investors and then a lot of entrepreneurs coming you know kind of coming in. Maybe just to start, Paul, give us kind of your lay of the land of these mega trends and, you know, perhaps a bit more focused on vaults and just

generally what your current mental model is for uh why this is catching on right now and kind of what these exports are doing for the industry. >> Sure. I think you know in general the [clears throat] the realization of the last year or even last six months as an industry is that crypto really isn't anymore here as a speculation product but more as infrastructure. like everybody we we really made this switch from product to infrastructure for for everybody whether that's us as builders but also fintex transfa institutions etc. Now it's like widely understood that you know moving to an open financial system on open rails is inevitable. It will happen. It will

happen on blockchains and in order to make this happen you have a few primitives to your point. Um stable coins being you know the money the payments money many money movements when transfers uh in general and then with this [clears throat] you have uh credit and vaults in in in general. And you know, I like to think of vaults as just a way to package uh credit into a simple and usable form, but the true underlying primitive is really financing. And and how do you have like onchain financing financing markets? You know, what we've noticed over the last few months is that the the market for crypto native loans is great. It's like a $50 billion market, but it's still very small compared to the entirety of credit. and

and there is a lot of appetite for those people that are not here for the crypto speculation aspect of things but are just here to upgrade their financial infrastructure that okay how do I unlock the $200 trillion market of credit and how do I bring it on chain and so that's like the you know for us what I see as the biggest and most interesting opportunity and is also the reason why we launched uh Midnight is to start to address this this market >> very cool obviously I mean the credit market as a whole is just absolutely massive we're talking trillions and trill billions of dollars. There's tons of innovations that are bringing institutions into the space and unlocking a lot of the capital efficiency that bringing this onchain provides. Just curious, I mean, you guys have onboarded some of the biggest

institutions in the space. I love the Morpho integration with Coinbase. It's kind of deacto neoank uh lending uh that I like to use. Um just curious about your experience working with some of these institutions like with Coinbase. you know, there's obviously integrations that kind of span far and wide, recent ones, you know, with other uh financial uh institutions. Just curious, what has that experience been like, you know, bringing them into the onchain space? Why now? What have you done to help bring them in and kind of help them understand the opportunity at stake here?

>> Yeah, I I guess we like to divide the type of institutions into you have the distributors and you have the operators. So the distributors are the fintexs of the world, the exchanges of the world that have a large consumer audience and want to offer those financial products that are on chain and and and because they're better and more more more accessible. So that's the case of Coinbase, of Robin Hood, of deal of like all those different partners that we we we help you know power earn services or loan services directly on chain. You know the reason they [clears throat] they came on chain in the first place is for one very simple reason is the interest rate is so much better on chain right and the reason the interest rate is so much better on chain is it's an open infrastructure so competition is

much more fierce you get access to global capital you know Coinbase lets you borrow on the back of your Bitcoin and then on the other side of the book like on on the Morpho protocol you have literally tens of thousands of lenders coming from all over the world that are here to compete to provide you the best poss possible rate. This is not something that exists in TRFI today, right? And so this is why those those fintexs and those like exchanges, those distribution platforms are interested is because the pricing is better, the liquidity is better and also because the system is all open, it's super easy to integrate. Like if you have a self-custodial wallet now, whether you have it in house like Coinbase or you use a preview like like the Robin Hoods of the world, like you can just in one

click get access to if you if your user has a self-custodial wallet embedded, you have access to all the powers of the chain and because everything is standardized, everything is open source, it's like super easy for your developers to integrate. And that's like, you know, the second benefit uh for for for those institutions. And then the operators of the market are like more the the traditional finance guys like the people that are going to you know develop those financial product offering. This is more more nent set of institutional but with you know over the last six months we've seen like unprecedented like you know interest and and and builds from those large financial institutions and can talk more about that.

>> Yeah. Yeah. Let me I want to set the stage here for the next question which is that you know you guys have already gotten you know hundreds of millions of dollars in deposits probably upwards of billions of dollars but within specific integrations I have here like hund00 million in Robin Hood earn uh that's curated by stakehouse finance um you guys have obviously you know morph blueue integration with Coinbase like these are massive massive integrations that you have um but obviously the market is not satisfied uh you know the the idea of an open credit market is that you know you uh bring the world's credit on chain.

Now with Morpho Midnight, right, these are mostly fixedterm loans and and and fixed rates. And so I'm curious who was asking for this? Like who is the next nut to crack? What is the next market segment that you're looking to onboard right after you get, you know, somewhat of the crypto adjacent Coinbase? You got the Robin Hood who's also somewhat crypto adjacent. you guys, you now have these people and these companies onboarded and hundreds of millions of dollars in deposits into these integrations. What is the next market segment that you're looking to obtain and why is Midnight specifically tailored at onboarding those companies and those audiences?

>> It's a great question. So, we mentioned this big number of $200 trillion, you know, credit market. Obviously, there's a lot of subdivisions inside this market. You have government bonds for example which is like approximately hundred trillion dollars. You have like securities lending like mortgages like loans secured by some card receivables like uh consumer loans. You have a very wide range of loans that we could go after as Moro and decide to build infrastructure for but in an open way on the blockchain to unlock you know better accessibility, better interest rate as we were discussing.

[clears throat] I think in order to access those and unlock some of those um uh pockets of of of of credit um it was very clear to us that a new 0ero to1 was needed like you actually needed to change like a lot of things and it was not going to be with like 10% improvement on each each version of morpho that we were going to unlock those ambitious like you know milestones and I think you know after chatting with pretty much every large like financial institution in the world and you know large you know fintech that are distributing those products. The first number one thing that was that was clear is that they want control, right? They want control over the rate, over the risk, over the compliance, over the fees, and they don't want, you know, a

bunch of crypto natives to like manage the product. Like some of them are like multi- trillion dollars asset managers. They know how to manage capital, right? Like they don't need us to be frank. What they don't know though is how do you build safe smart contract that is going to connect them globally to global sources of capital right and interconnect everybody this is the opportunity for them it's an infrastructure opportunity to to upgrade and so concretely today up up until today if you want to build like if you're like a large asset manager and you have your your team in charge of building portfolio those guys like want to control their risk but they don't want to control the risk without controlling the rate for example so when issue different types of loans. It's less so about, you know, providing

predictability. It's more so about control. And this is maybe the least understood thing about like more for strategy overall. Like obviously we're going to provide fixed rate which is going to provide like you know certainty for consumers, right? The number one feedback that we get from large scale consumer lending products is that people want certainty, right? So that's going to be useful and that's great. Midnight is going to unlock that. But above everything now if you're a curator in moral you can not only say what you trust but you can also say at what price right whereas up until today it was a formula telling you hey here is you what you can trust but you know you don't choose the interest rate the interest rate is the the formula that morpher provided etc and that was very limiting for them because they could not express

their intent clearly and as a result there's a bunch of loans they could not underwrite now that you have the ability to give the Great. Theoretically, you can underwrite anything like, you know, I I I trust the the rollup. So, I could, you know, with just this information without collateral, I could give it a price, right? If if it's a formula, if I don't control the formula, it's not really reasonable for me to do it. But if you know, I trust your reputation, then maybe I'll give it like, I don't know, 15%. And because it's a competitive market, maybe a curator will give you 13 or 12, etc. But in order for those like underolateralized loans to be unlocked, you need control on the rate.

you need fixed rate fixed term that's like a necessity uh and that's the zero to one we need in order to unlock all the rest midnight as we launch this is very barebone protocol and it's a very simple protocol but around it we're going to have a bunch of modules a bunch of gates a bunch of callbacks that are going to be built in order to unlock those diverse pots of of credit that we've been we've been mentioning >> so under collateralized loans on chain have been very elusive for a very long time there's been several protocols that have attempted it no one has been able to get it to stick on chain at sign significant scale. You're saying that now because of the customizations with Morpho Midnight under collolateralized lending on chain is possible.

>> Yes. And I want to be clear, we're not going to start with this. This is not the focus for Morpho at the moment right now to develop under collateralized loans. But I think the key realization that we've had and you know for now eight years now people have been asking oh under collateralized loan and D5 would be great. How can you your decentralized protocol achieve under collateralized loans and it seemed impossible and and the reason is it is impossible. You can't expect a decentralized protocol to underwrite like credit for people. However, this is not what Morpho is here for. Morpho externalizes the risk management. We have this network of curators that maybe one day they're credit fans, right? And the only thing that we're going to do is we're going to let borrowers express why they should be trusted and connect them

with lenders with curators that are, you know, believing in them and giving them a price. And we're basically running the connection and this quote unquote auction for them to get financing, right? And that can be collateral, but that could also be no collateral and that could just be identity or a legal contract or whatever. So the the midnight structure basically as soon as you give the ability to price the loan you are able to underwrite pretty much anything including under collateralized loans. Now I want to be clear I we are starting with over collateralized loans with you know bitcoin over collateralized loans on base. It's like very we're starting very simple with midnight very conservative and there's immense opportunity to expand over the

coming months. Uh but we're starting very simple. Yeah. And I think Paul part of that uh simplistic start is kind of what the current user base wants, what the you know onchain natives or kind of institutional scale high net worths what what they want. But then I remember in con we were speaking about this kind of like more esoteric plan or you know kind of optionality that Morpho has where anything from like an aviation lease to like a real estate market to like a venture saft or something can be provided as uh like collateral or you know uh used in these vaults and like you said as long as you have somebody who's willing to underwrite the risk in midnight with a fixed rate and they can

control that right? Then you know the options you know drastically increase for the types of you know assets and so I think you know just curious how you think about that potentially playing out in the same sense we saw you know tokenized deposits and stable coins be kind of like the first thing to be tokenized like oh let's take a dollar and put it on chain you know breakthrough and now we're you know very much deep into the tokenized equities complex and we're seeing those trade on Robin Hood chain we're seeing those you know potentially start to be collateral in places like lighter uh for per so we're starting to get into that market now. How do you think about the evolution of um midnight and morpho is similar to where you know you start with kind of like like the basic stuff and

you move down the risk curve or down the you know esoteric curve for like a better term. How do you think about how this product might play out? So I think the first thing is we truly want a slow start right like I think for beyond like strategic and market reasons is purely like this those past six months have been rough for D5 from a security perspective like you know whether that's AI or or North Korea it's been like you know a lot of lot of different hacks and you know Morpho is probably one of if not the most reputable like firm in terms of like smart contract security and quality of code and and and infrastructure We want to continue that way. We spend two years to ship midnight, right? So we we we don't want to [ __ ] it up. We

really want to take the time on board users, get them to understand uh what this is all about uh in order for them to confidently engage. So that's step one. And that's going to take multiple months like you know um and one thing that we could do theoretically right now is that the vault of morpho they can allocate to midnight already. like it's just a switch for the DAO to approve and now they can allocate to midnight and you have multiple billions, right? So you could have we could have done an explosive launch and just allocate billions to midnight but we don't want anything to explode, right? So that's that's the reason why it was uh not decided to do that. But it at some points as we build you know Lindy and people start to understand and liquidity

start to form then we can start to enable the switch and then the liquidity of vaults will be able to be allocated by curators to the different markets and they will be able to to to play around and build like real depth etc. Then we start with you know fewer markets the blue chip collateral and then over time as we you know like creators quote, they they're going to quote much more and more bespoke and and and interesting collateral. One of the interesting things about Midnight is that gives you such a breadth of modularity when it comes to customization of what you want to put as the trust assumption whether that is collateral or no collateral. So you could do portfolio as collateral loans with like you know a hundred of different collateral accepted right and

the curator can give it a price. So you could take the list of all the coin gecko assets and say hey like any of those assets that if you have them as collateral under a certain LLTV I'll give you a loan right so that's enormous unlock for fintex right if they want to do portfolio as collateral for example into into into their app but most importantly now we have gates in morpho so if you have products that are only accessible to accredited investors you can very quickly um you know basically enforce that in at the protocol level and the beauty of it is that it's not isolating liquidity like it would in like the old version of DeFi or in Morph Blue even where each market is separate and if you KYC one market it can't share any liquidity. Now we're in an intent

model, meaning that you can as a curator promise your liquidity into multiple isolated markets at the same time. And your 100 bucks that you're committing in one market, you can also commit that same 100 buck into dozens of other markets, right? Whether that's markets that require KYC, no KYC, etc. So, we really did a lot of work thinking about in this world there's going to be modular. How do we limit liquidity fragmentation? How do we foster capital formation, network effects, etc. And I think Midnight has been built for this. >> Yeah. And so, Paul, I I understand the slow approach here and the methodical rollout as well as the way that you're thinking about uh kind of executing on the more uh higher risk, higher reward

type of strategies or opportunities for curators. I suppose the one question about the incentive uh dynamic here for your business is you know the way that Morpho grows is is going to be more TVL more user deposits more aum into vaults and then also kind of a facet of that is going to be uh more uh as I've said now esoteric vaults or more let's just call them more risky vaults and so I guess how do you balance the dynamic of growing morpho into a multi-undred billion ion dollar AUM protocol with the incentive potential misalignment of more risk, more vaults, more yields, more

degenerate farming strategies, less risk management and kind of like that being the way to grow. >> More food needs uh higher risk to grow. like the biggest pockets of capital today, the 100 trillion dollars of the 200 trillion is government bonds which are the most borrowing uh you know types of credit right so it's not about you know the the what the problem that DeFi has is not a risk problem it's a demand problems there's no borrowing demand right and so what this pushed people to do you know is to list like you know more risky cryptonative assets which had not a good riskreward payoff right and we saw this with kelp and and a we saw this in multiple morpho vaults that were more willing to take risks as well. And

and I think this this is the problem. What what midnight enables is to enable demand and origination that are completely well riskadjusted but that were not possible on chain before. Like we are enabling new markets that you know will let people borrow in a way that were not even imaginable before. And that does not mean more risk that just means more demand uh for a risk level that that remains reasonable. >> Yep. Understood. And then Paul, I mean, I guess on this note, when you're thinking about the growth here and, you know, managing this business, um, talk to us about uh the the dynamics of the Morpho asset, not with regards to directional, but I is owning the Morpho

token equivalent to owning uh equity in Morpho? Are they just one and one and one and the only? there's no like labs or like I'm sure there's some you know legal stuff here but is it is it effectively onetoone from an economic uh perspective? How how does that work from the token side? Mara does not have any traditional equity. We're a nonprofit you know foundation based you know registered in France which has um equityless like subsidiaries uh in the US. Um and and the only asset of the morpho network is the morpho token. And the morpho token is a very simple construct. It just owns the network. And the only thing that it can do is

basically it controls the treasury and the fee switch, right? And so [clears throat] all the value that is created by the decentralized network is owned by the token holder. So if you own the token, you own a share of the network, right? It's as simple as that. and and then you get to decide what to do with the economic value, right? And if you're you know most likely if you're if you're if you're rational and you do believe that you know DeFi is going to take over the $200 trillion market then the one thing you will do is to reinvest in growth right any you know at least that's my perspective is like I don't see any value in like distributing like peanuts dividend every year of like 2 3% while the market is like 10,000x what the current size we are today like the

only economically rational thing to do today uh is to basically reinvest everything into growth like grow the team grow like the the amount of of distribution that we have and and deals that we have in order to, you know, get closer to that $200 trillion mark because this is really where where the actual value creation is going to happen, right? If if crypto is deemed to remain like financial products for crypto native people like this is great but also like not that interesting. Frankly, I would not be working in this industry otherwise like if I did not believe that this was going to empower the entirety of the financial system.

That's the thing we should be looking at. And so that would be your kind of uh re rebuttal to the morpho is a great protocol has massive potential but the token uh economics don't align with the upside for holders. >> Well my my my counterbalance to that is that anyone distributing and that's a hot take right is like anyone distributing fees to token owners right now is extremely bearish about their potential. Like it's basically means you fulfilled your mission and you're just not ambitious enough. If you're truly [laughter] ambitious about like transforming the financial system, then just go hire like a 100 people and go for it. Like we have an entire market to capture, right? And this is what this, you know, this this industry is about, right? Now, if you don't know what to do

with the money and you just, you know, distribute 5%, then yes, fine. 5% is a great APY, but it's much less interesting than 100x, right? So, that's like the the my mental model for for value and token in this ecosystem. >> Yeah. And I think it's funny because I think the pendulum has swung so far to like I mean just hyperlquid 99% buybacks make a bunch of money buy back the token revenue like what and I think as the bull kind of I feel like we're in this kind of transitory phase with the market and so I think as the as the bull comes back that pendulum probably swings back a bit more into like the neutral side of like well look guys we don't need to be buying back all of our tokens like it you know there is some value in like the

speculative growth of these of these protocols and your thesis this people think that it makes less sense in the bare market because they want to have this kind of higher floor um setup. But in a sense the what you're saying is that that economic strategy of consistent dividend or buyback also kind of sets a lower ceiling. Is that right? >> If you spend hundred millions of dollars on buybacks, like what if you spend this on your team, right? like and what if you spend this on product and building and growing and like we're so small like I think this is like I mean this is maybe where I disagree with some of those projects is like I truly want to transform the financial system and it's not just the crypton natives like the

entirety of it this like multiple hundreds of trillions of dollars like I need the money like and and to go after this right and and and and I I'm not going to throw it away right now just for 5% I I want this thing to 100x to 1,000x right and it depend it's really just a goal and expectation thing like morph is playing the long-term ambitious game and we're not playing the short-term game, right? Basically, and if you're playing that long-term strategy that is very ambitious, I don't think it's rationally, you know, it's not rational economically to distribute, you know, but again, that's my perspective. You know, I own a lot of tokens, but not, you know, I don't decide on everything on this. I have a a perspective and, you know, maybe token decide differently, but but I'm very, you know, that's a strong opinion of

mine. >> Yeah. Yeah. And then Paul, um, kind of flipping gears off the Morpho token into the business model of some of of the vault kind of complex from your purview with curators. Um, not asking you to like pick favorites or tell us who's doing well necessarily, but kind of curious just like what the state of the curator complex is. Like, you know, I know steakhouse is dominating in terms of aum, uh, Gauntlet as well. Um, and so like what are those guys doing, right?

Uh, what are the strategies that have been working? How are they making money? Are they making a good bit of money? Like just kind of give us a little bit of insight from your perspective as to what some of the leading curators are doing well, how their business is evolving as you guys are evolving and kind of what those relationships look like. >> Yeah. So I think it's pretty clear that so-called curation is going to be the future of you know asset management in one way or another. Um and today it's very different. It's non-custodial etc.

But this is like the very clear trend. I think today the way the the the curation space has evolved is that we started with very few curators like two three at the time it was a big bat that some some companies like steakhouse took on on morpho by like starting starting this business and then it became very trendy a lot of people came in and now we're seeing the opposite like a contraction of the market where only like the best curators have have survived like and I say this objectively like looking at the data etc. So we have a concentration around like approximately five, six, seven different curators uh that are are are have been doing an an amazing job on the cryptonative side. So that's on the cryptonative side. And then what we're

seeing is obviously the more institutional players that look at this and say, "Oh, actually it makes sense." And not only it makes sense, but I think the category is going to grow a lot because this is the future of asset management. And so if you look at like the winter mutes of the world, the galaxies of the world, the bitwise of the world, those are like the newer curators that come from much more institutional background uh that are coming in and and and developing this new business line because they have the belief that this category is going to grow immensely u which which it will. I think right now if I'm being a critic of the situation, I think the the problem that they have is that there's not so much demand, right? Like on the borrow side it's like like there's only so few

things you can underwrite for two reasons is the infrastructure is limiting. Morph for blue was very limiting. Like you know you can only do over collateralized open term variable rate. That's like that's great but that's not like enough. They're limited by the tokenization. Like there's a lot of of of loans we'd like to do but you know this is just not the token is not on chain yet. A lot of collateral would like to bring but the pricing is not accurate or the liquidity is not good etc. But this is coming. But so this is coming and with midnight coming there's also new types of loan structure that will will we we will you know allow them to build better products better vaults because there is a better demand side coming in.

>> Yeah. And and then Paul just real quick followup and then I'm sure Rob's got a bunch. Um so is this like a gauntlet stakehouse 56 others you know just looking on Blockworks data they just launched their new vaults thing. Um you know there's dominant players there and these are cryptonative. Is this like a bitwise galaxy or like expanding the market and bringing in new AUM and competing with the existing curators or is this like a competition pool for a specific kind of sector of vaults that's happening with these existing players and then a separate competition pool um in this industry right now and we see it in media for example you know previously

you know you put your announcement on coin desk or on the rollup or on bank list or on you know the defiant now it's like people are going down south here and just going straight to phi and going to the New York stock exchange so in a similar sense is it like are we seeing competition from bitwise and galaxy and you know Apollo ver now you know kind of fighting for a pie that cryptonative curators are currently uh you know have their control over or is it kind of separate pies like how do you think about the competitive nature and pools of competition w with the curators.

>> Yeah. So, it's a great question. I think there's a little bit of both. Like the aspiration is that those new institutional curators will definitely expand the market in two ways. They expand it because they're more trusted in the eyes of distributors. Like if you're a big brand like Galaxy or Wintermut or Bitwise, you have you bring some new credibility or you bring your own portfolio of clients that you know expand the market for more fo for sure, right? But [clears throat] then at the same time, there's also leads where they compete, right? you know I I can't get into like confidential conversation I've seen but like there's a few fintech where as they were selecting the curators it was extremely competitive right between between between curators and and so I I'd say there is a bit of both like I think today we as morpho I

have to acknowledge we are the limiting factor for the expansion of the market because we have some barring demand some origination demand because at the end of the day the origination demand is what's going to make the differentiation of the vault but The reality is that without midnight we could not serve that demand. We did not have the plumby for the borrowers to come in and and borrow and and this is our responsibility and we've been frankly we've been the limiting factor for more than nine months now I feel like and we're late for more for midnight more than nine months on our timeline. We we were supposed to launch like nine months ago.

>> Uh but um but but yeah. >> Okay. Interesting. Yeah. Um, Paul, I I've got something here because this came over the wire just a couple hours ago. And I know people are, you know, also having the the conversation on on Twitter right now about, you know, vaults expanding, trying to get more AUM, trying to offer more yields to attract depositors. But I think you make a great point about the risk adjusted return. Like you try to go get more yield, you're going to take on more risk. But there is plenty of demand for a nice solid, you know, tokenized credit fund, right? we have the likes of Apollo and Janice Henderson and all these guys that are coming in and they're offering some really really great risk adjusted uh yields. Um the SEC commissioner

Hester Pur earlier today, just a couple hours ago, I'll just read this word for word, warned crypto vault and onchain lending builders against structuring products to evade securities laws, stating they risk a painful fall. Vaults may trigger how we test common enterprise rules or investment company status. Loans could qualify as securities notes. And so given that you know now we are getting these tokenized funds on they're providing some you know really tremendous riskadjusted returns. How do you navigate the regulatory landscape? Is this a is this regulatory burden something that falls on Morpho as the technology company or does it fall on the curators to enforce KYC and enforce other securities laws?

>> It's a great question. So I think first I should I should mention that I'm currently in Washington DC for the week as I'm as I'm doing this live stream for for for for a reason. Um I think in general few things is like it's obviously uh u something Morpho should should be you know extremely uh careful about right to make sure that the builders even though you know at the end of the day the curators are running the vault and and they're structuring it uh we need to make sure they have the proper tools in order to compile right uh and so we also need to make sure that the morpho stack in itself you know allows them to you know either build like a fully decentralized non-custodial vault or in the case that you know the vault you know becomes a security then

give them the necessary tooling to register if that was to be the case. H so this is how we see our responsibility is like an enabler to comply may they need to comply for the given you know product that they're they're willing to do. >> Okay. And so does this look like segmented instances? Um for instance uh like how do you balance the capital efficiency benefits of pooling all the liquidity uh for a vault versus like having the segmented liquidity model? Obviously the vaults currently are not comingled. But when it comes to specific products, you know, you might have to segment liquidity even within certain products. How do you navigate this? Is it just about providing the ultimate amount of flexibility and customizability to your to your vault

curators as a technology company? How do you do this? And and you know, how do you balance regulatory with capital efficiency? >> Yeah, it's it's a great question. I mean, I I should say that one of the goal of the SEC is to provide capital efficiency. Like it's about protecting investors and maximizing uh uh capital efficiency at the same time, right? And so so one does not necessarily go against the other, right? We see you know our role as enablers and in some capacity morphos infrastructure we kind of have the same goal right like we want to have you know maximum capital efficiency and at the same time we want to make sure that uh investors are able to be protected for a given risk profile that they're willing to take right and a given risk that they're consciously willing willing to take and so what does

that mean concretely to enable curators with a stack that allows them to comply we call this like programmable compliance in morph but basically vaults now have gates right So if you want to blacklist user according to like you know a set of arbitrary parameters you can or if you want to whitelist users you also can right and it can be a set you know it could be a list it could be a function it could be a smart contract call uh and it's it's very programmable in itself but also we have to be clear like you know vaults does not mean really anything today like you can have you know vaults with like very active management with very high level of discretion uh that invests in a basket of securities Well, in that case, yeah, it's probably very hard and, you know, I'm not a lawyer, but but it's probably

very hard to justify that this is not a security, right? And then you have vaults that are fully decentralized that are running on immutable code where the curator has no capacity within the limits of the time lock to take control of the funds and they can only operate within a very confined and constrained environment. Well, in that case, maybe it is not. Right? So what I'm trying to say is that there is a full spectrum and and you know we we are engaging with with regulators to understand you know where where are the the limits and and in any case we'll be you know providing the curators with the tools for them to comply may they need to >> and uh you're there in DC right now doing this show from from Washington DC what do I mean clarity

you think this thing go through what are you what are you hearing on the ground there in I see. >> Um I'm I'm hearing a lot of things. I'm hearing a lot of things. Uh it's it's funny because I think the the momentum seems to be slightly a bit more slightly bearish than it used to like a few weeks ago, but it keeps changing every two days now depending on like the latest. I don't even know if we have the latest draft uh yet or not, but but but yeah, I'd be cautious about like sharing anything. I don't personally don't have a perspective. I you know it's very hard for me to figure out like it's it's looks like it all comes down to the FX topic and you know who's gonna like make trade-offs there. Um but yeah >> so poly market has it at 37% chance. You

think higher or lower? >> I I don't know. I [laughter] think the I've seen I've seen people more bearish than 37% in >> like is my feeling but frankly I did not do the math so I I really don't know. Yeah, >> makes sense. >> Paul, last thing I've got for you here from my side. Um, when you're thinking about um what the strategy change is for the bull market, I mean, I think we're in this transitory phase, whether we're going to time the market or not. As a founder, you're kind of placing bets consistently based on uh product, strategy, team, but also in this industry being, you know, the the overly

cyclical nature of it, you're also placing kind of market bets. How do you think about treasury management for the upcoming period? How do you think about optimizing, you know, token holder value? How do you think about product strategy? What's what changes for you guys across the the board? I guess, you know, I'd say Morpho is probably not the best example here because we, you know, we just closed around of $200 million, right? So, we're probably one of the best like wellunded uh uh companies in DeFi, if not, you know, the most and and and so we I' I'd say we'd have different set of questions that we ask ourselves than like we don't think too much about the crypto market specifically, but you know, the questions I ask myself is more

the fintech market. how is their you know time to market to move on chain or with the large you know trati institutions like are they close to the moment where they're stopped doing proof of concept and they will actually build businesses entirely on on chain like those type of questions so I you know and obviously those things are correlated right because as soon as we'll see like the inflection point of like you know all the fintexs moving their their money directly on chain or or generating yield on chain issuing loans or trading onchain it will you know have tremendous economic impact on on the ecosystem which will probably have an impact on on value of tokens in general. Um so but that's I'd say downstream of that I I've you know I've

been historically very bad at predicting any of those events. Uh what what I will say though is that every single fintech that I know of has a road map to move like fully on chain. uh at at some point in the future like in the next like few years like it's not just like bringing the crypto section on chain whatever it's like the entirety of the app right and the entirety of so that's one thing and as you get this distribution on chain trfy is looking at this like you know the asset managers the banks are looking at this they're like oh okay so all of this money is going to move on chain so I'm going to be able I'm going to have to manage capital on chain right because this is where the money is going to be or I'm going to have to originate

because this is where the cost of capital is going to be the lowest or this where I'm going to earn yield etc. And so there is going to be this inflection point and to me this is all this is about is like this combination between market distributors and market operators like the fintex and the trafi when they meet together on the chain this is the next zero to one for crypto overall right and we're building towards this I spend my nights and days every seven days a week 24 hours like working on making this happen but but we're we're getting there like we're getting there we see this like Robin Hood launching on on more for like you know a few a few a few weeks ago. Um, many others will follow in in in similar in similar patterns and traing this strat fight is coming on chain as well, etc.

So, we're getting there. We're just like regrouping the the activation energy necessary to make the, you know, the um the the world recipe come together. >> Yeah, it's not even happening. And a lot of the things that you're saying align with the thesis that we've been talking about on the show. We have this tokenization super cycle that's happening. All of these assets get tokenized. There's trillions of dollars that get tokenized. Once they get tokenized, they need to go somewhere. It's not like we're just going to tokenize them for tokenization sake. So, they end up getting into the DeFi protocols that have been building for this moment their entire existence. And then we rerate the protocols valuations based on the onslaught of new assets.

And so, a lot of that ends up into the vault complex. And so, the the final thing that I got for you, Paul, is you know, at at one point, I mean, we saw Robin Hood basically announced that, you know, Robin Hood is now open to AI agents. You can open a Gent account, connect an AI agent to manage it. At what point is AI managing these vaults? You mentioned like a lot of these have like a lot of active management that could go into securities, they could go into crypto. Do you think we're going to see AI curators here pretty soon? >> So, a few things. I think AI curators is tough because you know there is this thing about risk management that is it's about predicting the future in some capacity and it's one of the last jobs that will be automated by AI in my

opinion it's like you need to give a price to possible outcomes for the future and AI is not there yet right AI is very good today for agency which translates into UX right so I think this the real zero to ones is going to be in defi and in the financial trend industry is going to be. How do you invest into products? How do you have someone that can classify your risk profile based on your history, the context, your identity you give about them, are able to guide you in your investment decision and let you deposit into that investment decision that is right for you. When it comes to managing funds themselves, I think that's going to be a little bit later. Probably it will come at some point. You know, you know, AI is going to take over everything anyway, but but like um it's in my mind this is this is

later on. Um now in practice today it's practically nothing >> right like to be completely honest like uh >> we you know we also work on this we have like you know uh we have an MCP we have like skills we have a bunch of things that people can integrate with their agents to to use Moro we have our own like internal like agents that that basically like study Moro all the time give us data around Morpho etc. Uh but you know we're still far away from the agent like lend and borrow um that is used at scale. I think it will come again from fintex. It will come from the Robin Hoods of the world that flip the switch. Right?

>> I don't think it's going to be a startup innovation etc. And by the way, in the age of era, the age of AI, I feel like surprisingly a lot of things are just going to accelerate the existing tech giants as opposed to like letting new new joiners come in because the real capital is the distribution and they already have it. >> Yep, makes sense. >> Paul, thanks for your time. Uh, congrats on on the midnight launch, the raise. Hope things go well in DC for you. um firmly at this kind of intersection of tokenization and uh and stable coins with what you guys are doing. And I think a as you mentioned like the the crypto market volatility is a bit less relevant than the broader secular trend of the uh capital movement from offchain

to onchain. So there's kind of like multiple charts you can look at and I think if you look at that chart consistently and you know it it paints a different picture than the ups and downs. So uh keep up the great work man and uh thanks for your time. Thank you guys. See you next