Morpho co-founder: The lack of liquidity in some funding pools is not a systemic flaw, but a natural reaction mechanism under pressure.

In response to concerns about "insufficient liquidity" in some of Morpho's lending pools, co-founder Merlin Egalite stated that when markets are under stress, people tend to reduce risk, meaning many lenders simultaneously attempt to withdraw all their funds. This leads to increased capital utilization and decreased liquidity, potentially resulting in a short-term lack of available liquidity in extreme cases. This is not a systemic flaw, but rather a natural reaction mechanism of the lending pools under stress. To restore balance, the interest rate model automatically adjusts borrowing rates. For example, Morpho targets a 90% capital utilization rate, meaning that in most cases, approximately 90% of deposited funds are lent out. When utilization spikes to 100%, the interest rate increases fourfold. In most cases, market interest rates typically return to balance (around 90% utilization) within minutes, while during periods of high market stress, recovery may take several hours. Furthermore, the so-called "insufficient liquidity" is localized and manageable, occurring only in isolated instances of market imbalance. In the past few days, only 3-4 of Morpho's 320 liquidity pools experienced temporary liquidity shortages, while the rest operated normally. Therefore, claims of a "liquidity crunch across the entire protocol" are misleading. Liquidity shortages do not equate to losses or bad debts. It simply means that a large amount of capital was lent out in the short term, and the market reacts in real time, repricing risk and finding a new equilibrium.