Quantitative research firm Gauntlet has joined Morpho, a trustless decentralized finance (DeFi) lending protocol, as a risk curator following its departure from Aave (AAVE).

Gauntlet specializes in risk management and will collaborate with Morpho to design transparent and automated lending vaults for users, the company said in a press release shared with Cryptonews.com. 

Morpho’s lending protocol, Morpho Blue, adopts a different approach by externalizing risk management from the protocol, which reportedly eliminates the trade-offs between growth and risk, creating a clear alignment between risk experts, users, and the protocol.

Morpho Blue is designed as an infrastructure rather than a product, allowing risk experts to build scalable products and services on top of a common base layer. 

Gauntlet to Curate Lending Vaults on Morpho

Gauntlet will curate lending vaults on Morpho using Metamorpho, an open-source protocol for permissionless risk curation built on top of Morpho Blue. 

These lending vaults combine the best features of isolated markets and multi-asset lending pools, providing users with a simple and optimal way to earn yield on their assets.

Gauntlet brings its expertise in risk management, leveraging battle-tested techniques from the algorithmic trading industry, to curate various high-quality lending vaults. 

The use of Metamorpho presents an opportunity for Gauntlet to stress test its capabilities and further enhance risk management strategies in DeFi. 

“Working with a team of quants used to trading in milliseconds, we’ve always looked for faster paths to proactively manage risk and capture growth opportunities,” Nick Cannon, VP Growth at Gauntlet, said. 

“MetaMorpho is our best opportunity yet to directly stress test our capabilities.”

Shortcomings of Current Lending Protocols

Gauntlet said the collaboration also sheds light on the shortcomings of current lending platforms. 

It claimed that many platforms tend to overexpose users to long-tail risk by forcing them into a one-size-fits-all risk profile, which fails to address their diverse needs. 

Morpho Blue addresses this issue by moving risk management to an open marketplace, enabling the creation of diverse risk profiles. This “externalizing” of risk management empowers users to adopt or develop risk strategies that suit their individual requirements.

Another challenge in DeFi lending is high costs, which Morpho’s approach aims to overcome. 

Unlike traditional lending platforms that select only one or two risk managers, Morpho enables open competition as curating a MetaMorpho vault is permissionless. 

This lowered barrier of entry encourages risk curators to offer more effective and transparent services at a lower cost, benefiting users and promoting innovation in the space.

“Morpho’s vision is to create a fundamental, trustless, and adaptable layer in finance, similar to how the Internet operates, enabling endless possibilities for innovation and customization in the decentralized finance landscape,” the firm said. 

It is worth noting that DeFi lending protocols have been one of the primary target of hackers. 

Just recently, Blueberry suffered an exploit that led to over $1.3 million worth of Ether being drained from the DeFi protocol.

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