Decentralized finance (DeFi) risk management firm Gauntlet has partnered with emerging lending protocol Morpho, just days after announcing its separation from long-time partner Aave. This move comes as a surprise to many in the DeFi space, as Gauntlet previously provided crucial risk management services to Aave for four years.
The partnership with Morpho sees Gauntlet creating its lending products on MorphoBlue, a newly launched service that allows firms to spin up their own lending and borrowing pools, known as vaults. This marks a significant shift for Gauntlet, as it traditionally served as a risk advisor and consultant, rather than directly participating in DeFi protocols.
Historically risk management has operated under a pull model within DAOs via other service providers, delegates, and community. In MetaMorpho, risk management is a first-class citizen and the pull comes directly from the market. We anticipate stress-testing our capabilities and… https://t.co/qoz8aKefjp
— Gauntlet (@gauntlet_xyz) February 27, 2024
The reasons behind Gauntlet’s departure from Aave remain somewhat unclear. In a February 21st AaveDAO forum post, Gauntlet co-founder and operating chief John Morrow cited difficulties navigating “inconsistent guidelines and unwritten objectives of the largest stakeholders.” This suggests potential disagreements between Gauntlet and the Aave community regarding risk management practices or governance structures.
Morpho’s co-founder, Paul Frambot, aimed Aave in a February 27th tweet, stating, “We are creating a future where risk management is not a black box controlled by a single entity, but a transparent and permissionless layer open to everyone.” This suggests that Morpho views its platform as a more open and collaborative alternative to Aave’s governance model.
The implications of this partnership are multifaceted. Gauntlet’s expertise in risk management could significantly enhance the credibility and security of Morpho, potentially attracting new users and capital to the platform. Conversely, Morpho’s innovative approach to permissionless risk management could offer Gauntlet greater flexibility and control over its services compared to its previous role with Aave.
However, the long-term viability of this partnership remains to be seen. Morpho is a relatively new player in the DeFi landscape, and its ability to compete with established protocols like Aave is yet to be determined. Additionally, the success of Gauntlet’s venture into direct protocol participation will depend on its ability to attract users and manage risk effectively within the Morpho ecosystem.
Overall, the partnership between Gauntlet and Morpho represents a significant development in the ongoing evolution of DeFi risk management. It highlights the increasing importance of transparent and collaborative approaches to securing DeFi protocols, while also raising questions about the future of centralized governance structures within this rapidly evolving space.
