Morpho Co-founder: Some vaults' "insufficient liquidity" is not a system vulnerability, but a natural response mechanism under stress

ChainCatcher reported that Morpho co-founder Merlin Egalite responded to concerns about "insufficient liquidity" in some pools, stating that when the market is under pressure, people tend to reduce risk, which means many lenders will simultaneously try to withdraw all their funds. This leads to an increase in fund utilization and a decrease in liquidity, and in extreme cases, there may even be no available liquidity for a short period. This is not a system flaw, but rather a natural reaction mechanism of lending pools under stress. To restore balance, the interest rate model will automatically increase borrowing rates.

Taking Morpho as an example, its target fund utilization rate is 90%, which means that in most cases, about 90% of deposited funds are lent out. When utilization surges to 100%, the interest rate increases fourfold. In the vast majority of cases, the market rate usually rebalances within a few minutes (around 90% utilization), while during periods of greater market stress, recovery may take several hours.

In addition, the so-called "insufficient liquidity" is localized and controllable, only occurring in individual markets experiencing imbalance. A few days ago, out of Morpho's 320 pools, only 3–4 experienced brief liquidity shortages, while the rest of the vaults operated normally. Therefore, claims that "the entire protocol's liquidity is exhausted" are misleading. Insufficient liquidity does not mean losses or bad debt. It simply means that a large amount of funds have been borrowed in the short term, and the market will respond in real time, repricing risk and seeking a new equilibrium point.