Morpho Co-founder Responds to Partial Liquidity Pool "Insufficient Liquidity": Not a System Bug, but a Natural Operation Mechanism under Stress

BlockBeats News, November 6th, Morpho co-founder Merlin Egalite responded to the issue of "liquidity shortage" in some of the pools, stating, "When the market is under pressure, people often choose to reduce risk, which means that many lenders will simultaneously try to withdraw all funds, leading to an increase in fund utilization rate, a decrease in liquidity, and in extreme cases, a situation where there is no available liquidity in the short term. This is not a systemic flaw, but a natural response mechanism of the lending pool under pressure. To restore balance, the interest rate model will automatically raise the borrowing rate."

Taking Morpho as an example, its target fund utilization rate is 90%, which means that in most cases, about 90% of deposited funds will be lent out. When the utilization rate surges to 100%, the interest rate will increase fourfold. In the vast majority of cases, the market rate usually rebalances within a few minutes (around 90% utilization rate), but in times of significant market pressure, the recovery may take several hours.

Furthermore, the so-called "liquidity shortage" is local and controllable, only appearing in individual markets experiencing imbalance. In the past few days, out of Morpho's 320 pools, only 3–4 experienced brief liquidity shortages, while the rest of the pools operated normally. Therefore, claims that the "entire protocol is suffering from a liquidity crisis" are misleading. Liquidity shortage does not represent losses or defaults. It simply means that funds have been lent out in large quantities in the short term, and the market will react in real time, reprice risks, and seek a new balance."