Paul Frambot (L) and Geoff Hamilton chat at EthCC in Paris on July 19, 2023.

I recently hosted a fireside chat with Morpho Labs co-founder Paul Frambot at EthCC in Paris, during which Paul confirmed that Morpho is working on a new lending primitive—one of the most notable (and slept-on) announcements to come out of this year’s EthCC.  

But what insights are motivating and shaping the evolution of Morpho? Our conversation covers Paul’s framework for the two types of DeFi projects, the limitations of existing lending platforms, and his views on how to build a truly scalable lending protocol. 

This conversation is a must-listen for anyone interested in how to build truly scalable projects and the future of DeFi. Paul is an accomplished builder, and his insights about what DeFi can do to realize its potential are timely and provocative. 

To quote Paul: “This is the endgame. The goal is not to provide leverage services to a handful of traders, the goal is to bring those protocols to mass adoption and really improve the current state of finance for everyone.”

I highly recommend the entire discussion, but below are some highlights for those who only have time for the tl;dr:

• Paul’s key framework for classifying DeFi projects: decentralized brokers and protocols (5:20)
• The limitations of decentralized brokers in DeFi lending (7:47)
• How to overcome the limitations of the decentralized-broker design and realize the full potential of DeFi lending (10:35)
• How protocol builders can manage the complexity they push to users (13:12) and attract others to build useful products on top of their protocol (15:00)
• Why the protocol model will be dominant in the long run (18:02)

Here are two of my biggest takeaways:

There are two types of DeFi platforms: decentralized brokers and protocols

In an excellent blog post on June 30, Paul introduced the idea that DeFi platforms can be divided into two groups: decentralized brokers and protocols. Decentralized brokers facilitate onchain financial interactions but require active management by governance to perform their functions. Protocols, on the other hand, are trustless and unopinionated financial primitives. Our talk explores the difference between the two types of platforms, and Paul explains their strengths and weaknesses. 

Proposition: DeFi lending needs protocols

Paul makes a strong case for why decentralized brokers are not the future of DeFi lending: they are not trustless, efficient, or able to reach scale. He explains why protocols are a better structure for lending markets at scale and lays out an approach to building and scaling a lending protocol.

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