Morpho Addresses Liquidity Concerns Amid Market Pressure

According to PANews, Morpho co-founder Merlin Egalite has responded to concerns about liquidity shortages in some vaults. Egalite explained that when the market is under pressure, lenders tend to withdraw funds simultaneously, leading to increased fund utilization and decreased liquidity. In extreme cases, this can result in a temporary lack of available liquidity. However, this is not a system flaw but a natural reaction mechanism of the lending pool under stress. To restore balance, the interest rate model automatically raises borrowing rates. For instance, Morpho aims for a fund utilization rate of 90%, meaning that approximately 90% of deposited funds are typically lent out. When utilization spikes to 100%, borrowing rates increase fourfold. Generally, market rates can return to around 90% equilibrium within minutes, but under significant market pressure, recovery may take several hours. Additionally, liquidity shortages are localized and controllable, occurring only in specific imbalanced markets. Recently, out of Morpho's 320 vaults, only 3 to 4 experienced brief liquidity shortages, while the rest operated normally. Therefore, claims of "entire protocol liquidity exhaustion" are misleading. Liquidity shortages do not imply losses or bad debts; rather, they indicate that funds are heavily borrowed in the short term, prompting the market to react in real-time, reprice risk, and seek a new equilibrium.