Gauntlet, a decentralized finance (DeFi) risk management firm, has forged a new partnership with DeFi lending protocol Morpho shortly after abruptly ending its collaboration with Aave. The collaboration, announced on February 27, will see Gauntlet creating its own lending product on MorphoBlue, a novel protocol enabling businesses to establish their lending pools, referred to as "vaults."
Typically, companies like Gauntlet are engaged to offer advice and manage risks in loan agreements. However, with MorphoBlue, risk managers gain the capability to design and oversee their loan agreements autonomously. This marks a departure from Aave's lending model, where the lending pool operates under the governance of the AaveDAO, a decentralized autonomous organization overseeing the protocol.
The decision to part ways with Aave was revealed in a February 21 post by Gauntlet's co-founder and chief operations officer, John Morrow. He cited challenges stemming from "inconsistent and unwritten guidelines" from major stakeholders of AaveDAO as the reason behind the split, expressing difficulties in aligning goals.
Gauntlet's move to partner with Morpho clarifies uncertainties within the DeFi market, especially regarding the company's future direction following its separation from Aave. Morpho's co-founder, Paul Frambot, criticized Aave in a February 22 post, accusing the protocol of hindering Morpho's growth through initiatives like the Merit rewards program. Frambot outlined Morpho's strategy to compete with established players like Aave and Compound in the DeFi lending sector.
According to Frambot, Morpho's Blue protocol directly competes with AaveV3 and CompoundV3, offering users more transparent incentives and robust risk management mechanisms. Despite Morpho's ambitions, Aave remains the dominant force in the DeFi lending arena, boasting over $9.3 billion in total value locked (TVL), compared to Morpho's $2.7 billion and Compound's $978 million, as reported by DefiLlama.
Frambot further elaborated on Gauntlet's departure from Aave, describing it as an inevitable outcome due to misaligned incentives, scalability challenges in cash flow, and a combination of political and mathematical complexities, in a subsequent post on February 22.
