Aave internal conflict escalates, Morpho quietly doubles: Is the lending throne about to change hands?

Author: Dingdang, Odaily Planet Daily

Shitcoins are dead—an almost unspoken but unavoidable consensus among crypto users over the past year. Even once-blue-chip tokens have fallen into prolonged sideways trading or decline amid the ongoing market downturn, with little sign of recovery.

However, amidst this overall slump, MORPHO tokens rebounded from a low of $0.96 in early February to the $1.8–$1.9 range, doubling against the trend. On the daily chart, this rebound has essentially formed an arc bottom pattern, possibly signaling a trend reversal. Is this rise merely a short-term market sentiment boost, or is it the start of a longer-term trend driven by fundamentals and structural factors?

When the old regime begins to consume itself

Morpha is a lending protocol launched in 2021. Initially, it operated similarly to Aave, Compound, and other lending protocols, but in 2023, Morpha introduced Morpho Blue (its current main version), transforming into an independent, permissionless lending layer, firmly establishing itself at the forefront of the Ethereum lending ecosystem.

However, in the lending space, Aave remains the largest and most well-known leader—an undeniable fact. Recently, Aave has been embroiled in governance controversy due to a proposal by founder Stani that involves a $51 million “Aave Will Win” fund framework.

This fund was originally intended to support new product development, with a proposal that future revenue from related brands would be 100% funneled back into the DAO treasury—a seemingly ideal move for the project to “cede control and share benefits with the community,” but it unexpectedly ignited long-standing internal conflicts within the DAO.

The root cause lies in a report published by Marc Zeller, a key figure in DAO governance and founder of ACI, on February 25. The report criticized Labs’ low capital utilization, revealing that over the past few years, the DAO had taken approximately $86 million from the protocol’s funds without sufficient transparency. Meanwhile, core developer BGD Labs announced it would exit in April 2026 due to governance friction. The founder’s high voting power has also been a point of contention, often dominating proposals and fueling disputes over power and fund allocation. As early as December last year, cracks had appeared within the Aave community—see “Big Brother Cutting Positions and Clearing Positions, Can AAVE Survive the Divisions?”

Now, as Aave slows down due to governance conflicts, Morpho’s simpler governance model has begun to attract attention. Aave exemplifies the first-generation lending governance paradigm—“DAO-led, global parameter adjustments”—where risk parameters (like collateral factors and liquidation thresholds) are decided by community-wide votes. While this design ensures overall stability, it can easily lead to governance bottlenecks—any parameter tweak requires broad consensus, and even minor disagreements can delay decisions, especially during contentious periods.

In contrast, Morpho adopts a modular, market-driven second-generation approach: the protocol itself is highly permissionless, allowing anyone to create isolated markets at any time. Each market’s risk parameters (such as LTV, interest rate curves, liquidation incentives) are set by independent risk managers (curators), rather than relying on a global DAO vote. This localizes risk management within individual markets, disperses responsibility, and significantly accelerates decision-making. Curators can quickly iterate parameters based on market conditions, reducing governance friction and decision delays.

When the old regime begins to internalize, it might just be the opportunity for new forces to overtake on the curve.

Data validation: Does it deserve this window?

Let’s examine Morpho’s fundamentals to see if it has the potential to challenge Aave’s lending throne. According to TokenTerminal data, in Q3 and Q4 of 2025, Morpho’s TVL consistently stayed above $9.5 billion, an approximately 80% increase from the first half of the year;

The active loan volume within the protocol also remained above $3.5 billion in both quarters, with a year-over-year growth of about 80%.

In terms of one of the most core metrics in DeFi protocols—protocol revenue—except for a relatively weak Q2, the other quarters have remained stable around $50 million.

User growth is even more straightforward: quarterly active addresses surged from about 30,000 in Q1 to around 400,000, indicating strong organic growth momentum.

Although Morpho’s current TVL and active loan volume still lag behind Aave, its rapid user growth has made it one of the most promising “dark horses” in the lending space. Especially in 2025, when the entire DeFi sector is under pressure and experiencing pain, Morpho’s performance demonstrates countercyclical high growth, proving its product model has withstood market tests. Protocols that can continuously attract funds and users during a bear market often have greater explosive potential in the next cycle.

Institutional variables: When traditional capital starts to bet

Good fundamental data only proves that the protocol has a solid foundation, but the real catalyst for changing market cap trends is the entry of traditional financial giants.

On February 13, Wall Street asset manager Apollo Global Management signed a major partnership agreement with Morpho’s non-profit organization, Morpho Association, involving a plan to gradually acquire up to 90 million MORPHO tokens over the next 48 months, representing about 9% of Morpho’s total supply. At the current price of $1.8, this amounts to roughly $162 million.

From a trading perspective, this will create sustained buying demand for MORPHO. But if you know Apollo, you’ll realize this is more like a strategic infiltration into DeFi.

Apollo manages nearly $940 billion in assets, with its private credit business known for high yields. The on-chain world offers leverage amplification and global instant liquidity opportunities. Since 2024, Apollo has been exploring crypto, mainly focusing on RWA (Real-World Assets), partnering with Securitize to tokenize diversified credit strategies into ACRED, which has now reached $130 million in scale.

However, the core challenge of RWA on-chain has never been issuance but liquidity release. Assets can be tokenized, but without efficient lending markets and leverage environments, their yield potential remains limited. From Apollo’s approach, it’s reasonable to infer that they likely intend to use Morpho’s lending markets to amplify the yields of their credit products. Morpho’s modular lending structure provides a natural fit for RWA—isolated markets, independent risk parameters, and customizable leverage environments—these mechanisms are far more attractive to institutions than parameter games under centralized governance.

This hypothesis is supported by evidence: although Morpho is permissionless, key parameter options still require governance expansion via Morpho DAO. If Apollo holds a significant amount of MORPHO tokens, it will gain voting rights that could push for RWA-friendly parameters. If Apollo’s strategy materializes as expected, Morpho’s modular design could attract more institutional capital, making it a key infrastructure for on-chain institutional lending expansion. Such institutional endorsement would not only strengthen Morpho’s competitive edge but also narrow the gap with Aave—especially as Aave is mired in governance turmoil.

Conclusion

Aave’s governance crisis may continue to weigh down its market cap and liquidity in the short term, while Morpho, leveraging its product structure and institutional catalysts, is quietly reshaping the competitive landscape of the lending sector. Whether Morpho can truly challenge Aave’s throne remains to be seen—by tracking its TVL growth and more TradFi players’ involvement. But at least for now, the power shift in “lending 2.0” has begun.

Risk warning: MORPHO tokens will undergo large unlocks in March, belonging to Morpho DAO, Morpho Association reserves, and core contributors. Short-term liquidity impacts should be closely monitored.