DeFi risk management firm Gauntlet partners with Morpho amid split with Aave

In a strategic move within the decentralized finance (DeFi) landscape, Gauntlet, a prominent DeFi risk management firm, has swiftly transitioned its collaboration from Aave to Morpho. This transition comes days after Gauntlet departed from Aave, a leading DeFi lending protocol.

Gauntlet’s shift to MorphoBlue

Announced on February 27, the partnership between Gauntlet and Morpho entails the creation of lending products on MorphoBlue, a novel protocol enabling firms to establish their own lending and borrowing pools known as “vaults.” 

Unlike conventional lending protocols, where firms rely on external risk management advisors, MorphoBlue empowers risk managers like Gauntlet to develop and oversee lending protocols independently.

Gauntlet’s decision to sever ties with Aave stemmed from challenges encountered in navigating the decentralized autonomous organization (DAO) framework of Aave, as highlighted by John Morrow, Gauntlet’s co-founder and operating chief, in a February 21 forum post. Morrow cited difficulties adhering to inconsistent guidelines and unspoken objectives of major stakeholders within the AaveDAO.

The unexpected rift occurred merely two months after Gauntlet signed a substantial one-year contract worth $1.6 million with AaveDAO, marking a significant shift in Gauntlet’s operational direction within the DeFi ecosystem.

Morpho’s competitive edge and response to Aave

Amid speculation surrounding Gauntlet’s future partnerships post-Aave, Morpho emerged as a fitting collaborator, providing clarity within the DeFi market landscape. Co-founder of Morpho, Paul Frambot, underscored Morpho’s competitive stance against Aave and Compound, asserting Morpho’s Blue protocol as a direct competitor to AaveV3 and CompoundV3.

Frambot criticized Aave’s attempts to impede Morpho’s growth through initiatives like the Merit reward program while outlining Morpho’s commitment to transparent incentives and robust risk management mechanisms for its users.

Market dynamics and Gauntlet’s inevitable split

Despite Morpho’s burgeoning presence, Aave remains the dominant force in the DeFi lending arena, boasting over $9.3 billion in total value locked (TVL), compared to Morpho’s $2.7 billion and Compound’s $978 million, according to DefiLlama data.

In a subsequent statement, Frambot characterized Gauntlet’s departure from Aave as inevitable, citing misaligned incentives, scalability challenges in cash flow management, and the intricacies of navigating political dynamics intertwined with complex mathematical models.