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

By: Dingdang, Odaily Star Daily

Meme coins are dead—it’s a consensus that crypto users have been unwilling to admit for nearly the past year, yet have no choice but to face. Even former blue chips, under the market’s ongoing weakening, have all fallen into long periods of sideways movement or a slow drift lower, with no sign of improvement.

However, even amid this overall slump, the MORPHO token has rebounded from the early-February low of 0.96 USD to the 1.8–1.9 USD range, going up by double against the trend. Judging from the daily chart, this rebound has basically already formed a rounded-bottom pattern, which might be a bottom-reversal signal. Is this rally driven only by a temporary burst of market sentiment, or is it a trend kick-off resulting from the resonance between fundamentals and structural variables?

When the old empire starts consuming itself

Morpha is a lending protocol launched in 2021. At first, its mechanism was similar to lending protocols like Aave and Compound. But in 2023, Morpha began rolling out Morpho Blue (also the current main version), fully transforming into an independent, permissionless lending base layer, firmly placing itself among the leading players in Ethereum’s lending track.

That said, in the lending arena, Aave is still the dominant leader with the largest scale and strongest brand—there’s no denying that. However, recently Aave has once again fallen into serious governance controversy due to a $51 million “Aave Will Win” funding framework proposed by founder Stani.

This funding was originally planned to support new product development, and the proposal explicitly states that related future brand revenue will 100% flow back to the DAO treasury. On the surface, it looks like an ideal move of “giving up control and sharing benefits with the community,” but it unexpectedly ignited long-simmering internal contradictions within the DAO.

The reason is that Marc Zeller, founder of ACI and a leading figure in DAO governance, publicly released an “audit” report on February 25. It accused Labs of having low capital utilization and taking roughly $86 million from the DAO over the past few years, while failing to provide transparent disclosures. Meanwhile, BGD Labs—the core developer of the DAO—also announced that it will exit in April 2026 due to governance friction. The founder’s high voting power also once dominated the controversial proposal, further pushing the entire DAO into a public tug-of-war over power and capital allocation. As early as last December, cracks had already appeared inside the Aave community; for details, see “The runner-up big brother cut his losses and cashed out, mired in opposing sentiments—can AAVE still be bought?”.

Now that Aave’s pace has slowed amid governance friction, it’s actually the “simplicity” of Morpho’s governance model that has started to draw attention from many. Aave can be considered the first-generation lending governance paradigm of “DAO-led governance with global parameter adjustments.” All risk parameters (such as collateral factors and liquidation thresholds) are decided via global DAO voting. While this design ensures overall stability, it can easily fall into governance bottlenecks: any minor parameter tweak requires broad community consensus, and even small disagreements can delay everything—especially during periods of controversy, when decision-making is more likely to grind to a halt.

By contrast, Morpho takes the second-generation path of modularity and market-driven design. 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, and liquidation incentives) are set by independent professional risk managers (curators), rather than relying on a DAO vote across the whole network. This means risk is strictly localized within a single market, responsibility is distributed to specific curators, decision speed increases significantly, and there’s no need to wait for global consensus. Curators can quickly iterate parameters based on real market conditions. The advantage of this design is that it greatly reduces governance friction and decision delays.

When the old empire starts to cannibalize itself, it may be an opportunity for the new force to overtake on a bend.

Data check: Does it deserve this window?

Let’s look at Morpho’s fundamentals and whether it has the potential to challenge Aave’s lending throne. According to Tokenterminal data, in 2025 Q3 and Q4, Morpho’s protocol TVL has stayed above 9.5 billion USD, up about 80% from the first half;

In both Q3 and Q4, the active loan size within the protocol also remained above 3.5 billion USD, with a year-over-year growth of about 80%.

As for protocol revenue—one of the most core metrics for DeFi protocols—except for relatively weak performance in Q2, revenue in the other quarters has basically stabilized around 50 million USD.

User growth is even more straightforward: the number of quarterly active addresses rapidly expanded from about 30,000 in Q1 to the 400,000 level, showing strong organic growth momentum.

Although Morpho’s current TVL and active loan size are still not as high as Aave’s, its user growth rate has made it one of the fiercest “dark horses” in the lending track. Especially against the backdrop of the entire DeFi sector facing pressure in 2025 and experiencing its share of pain, Morpho’s performance can be considered as achieving high growth against the trend—enough to show that its product model has stood up to market tests. And in bear markets, protocols that can continuously attract capital and users often have stronger breakout potential in the next cycle.

Institutional variable: When traditional capital starts placing bets

Strong fundamental data can only prove that this protocol has solid groundwork, but the bigger catalyst that actually changes the market-cap chart is the entry of major players from traditional finance.

On February 13, Apollo Global Management, a Wall Street asset-management giant, and Morpho’s behind-the-scenes nonprofit organization Morpho Association signed a landmark cooperation agreement: Apollo plans to gradually acquire up to 90 million MORPHO tokens over the next 48 months, equivalent to about 9% of Morpho’s total supply. At the current price of 1.8 USD, that’s worth roughly $160 million.

If you look only at the trading layer, this would create consistent buy-side demand for MORPHO. But if you know Apollo, you’d also understand that this may be more like a strategic penetration of DeFi.

Apollo’s assets under management are close to $940 billion. Its private credit business is already known for pursuing high yields. The on-chain world offers it opportunities for leverage amplification and global real-time liquidity. Since it began exploring the crypto sector in 2024, using RWA as its main battlefield, and in cooperation with Securitize, it has tokenized its diversified credit strategy into ACRED; its current scale has reached $130 million.

However, the core challenge after RWA goes on-chain has never been issuance—it’s liquidity release. Assets can be tokenized, but if there’s no efficient lending market and leverage environment, their upside potential can be hard to realize. From Apollo’s layout, it’s not hard to reasonably infer that it likely aims to use Morpho’s lending market to amplify the yield of its credit products. Because Morpho’s modular lending structure naturally fits RWA—isolated markets, independent risk parameters, and customizable leverage environments. For institutions, these mechanisms are far more attractive than parameter games under unified governance.

This speculation isn’t without basis. Although Morpho is highly permissionless, the key parameter options still need to be added via Morpho DAO governance expansion of the option library. If Apollo holds a sufficiently large amount of MORPHO tokens, it will gain corresponding voting power, which could help push additions of RWA-friendly parameters. If Apollo’s intention truly lands as speculated, Morpho’s modular design could attract faster inflows of institutional capital, making it a key on-chain infrastructure for amplifying institutional credit products. Such institutional-level endorsement would not only strengthen Morpho’s competitive advantage, but also narrow its gap with Aave—especially when Aave is currently mired in internal governance turmoil.

Conclusion

Aave’s governance crisis may continue to drag down its market cap and liquidity in the near term, while Morpho—leveraging product structural advantages and institutional catalysts—has been quietly rewriting the competitive landscape in the lending track. Whether Morpho can truly shake Aave’s throne still needs to be observed: its TVL continues to catch up, and more TradFi players follow suit. But at least for now, this “change of power in the second-generation lending” has already begun.

Risk warning: In March, the MORPHA token will see a large unlock, attributed to the Morpho DAO, the Morpho Association reserve fund, and core contributors. Short-term liquidity shocks should be closely monitored.