What Institutions Want From Onchain Credit: Compliance, Fixed Rates, and Neutral Infrastructure

We're back at the Stablecoin conference in Mexico City presented by business. I'm sitting down with Dennis, the head of institutional growth at Morpho. I'm super excited for this one. We've got to talk vaults a little bit, but it's becoming more and more involved in the conversation of modern money. So, Dennis, thanks for sitting down.

StableDash live is sponsored by Agora, built for global institutions moving money at the speed of the Internet. You can learn more at agora.finance.

You were just saying you were on a panel today. How'd that go? That's fine. It's good. They

they got my I think they got my profile picture wrong. So people were sitting in the front row, and they were looking at the screen, and then looking at me, and then looking at the screen, looking at me. But, yeah, it was great. Well, you said you're six you're six months into Morpho. What what was the panel on today specifically? Was, actually an announcement with Juno who launched the first, peso vault. Okay. So it was all our vaults are mostly dollar denominated. So it's like So that's that's a big step, peso.

And so, yeah, super excited about it. Today, Morpho is around 10,000,000,000 in deposits. Wow. And it's it's primarily dollar denominated. Yeah. So

Juno taking kind of the step to offer a vault in pesos. Super exciting. So what are the what are the downstream effects? So this this vault here, what's the hope? I imagine it's it's fintechs in Mexico going and integrating this. It's the institutions. It's a little bit of both. How do you see this affecting the market?

I mean, I think everybody's learning. Right? When we think about the typical actors thinking about infrastructure, it really ranges from fintechs, card providers Mhmm. To traditional institutions and banks. Everybody is curious about on chain credit, and they're curious about lending infrastructure. Yeah. And so a large part of my role and the team's role is to be able to give them the tools, the the education, the understanding, and with ecosystem partners, try and present the use cases for on chain credit. Mhmm.

And Morpho as a lending infrastructure is permissionless, neutral. And we try and create the analogy of being the HTTP protocol on the Internet or Swift for binding. Like, why would you build your own? You can just use Morpho. And whether you want to create a permissionless market, a permissionless vault, or fully permissioned vault or permissioned market, you can do that. So we kinda see ourselves as the building blocks for on chain credit. So people, the building blocks of on chain credit,

USDC, use US dollar US dollar denominated stablecoins have been the backbone. How have you seen, you know, Volt's on chain credit, you know, maybe evolve? And, obviously, you're newer with Morpho, but I have to imagine you're not new to the space by any means. Where has on chain credit been, and where do you see it starting to go? Yeah. Great question.

So if you think about on chain credit through the lens of what DeFi has been over the last four or five years, it's evolved a lot. Right? People understand DeFi as being primarily an area for

crypto degens. 100 x lever looping. Yeah.

These crazy strategies that, like, are from a from a from a from a an institution's perspective, when they look at, like Mhmm. Whether it's leverage looping across a range of different assets producing yield in the mid teens, it's just not something that they're interested about. Yeah. And was something that, I think, helped mature DeFi in a certain respect. But today, in the conversations that I have with institutions and fintechs, yield is not the first conversation. Interesting.

We don't even get to yield if we cannot talk to them confidently about risks around custody, risks around compliance, risks around regulatory, risks around infrastructure, risks around a stress event Mhmm. Or a bankruptcy. All of these scenarios with different teams within a bank, for example, and they have to be highly comfortable in understanding

what a smart contract does for a typical counterparty. Yeah. And so when you think about, you know, looking at risk, going through this compliance, is this are these is this happening off chain, or do you see this going to the future with where this is completely on chain, verifiable, programmable? And is that something that resonates or still feels confusing to these institutions? Because because we've been talking, I think, about m zero and predicate. They're like, hey.

We have all the compliance controls built in. It's kinda modular. You can pick what you want when issuing your stable point. So I was like, is is that the parallel analogy we're starting to think through here? And I guess the part two of that question is is is the risk standards are set by the government? Do we want that, or is this coming together as an industry and saying, you know, these are the standards we think we should operate around or a little bit of both? So Kind of a loaded question there.

So feel free to to pick one lane and and go down and think it's a Well, like, so this is what we're trying to do. We're trying to move compliance

and risk from an operational back end of an institution or a bank and bring that on chain. That's that's exactly what we're trying to do. Yeah. And so when you think about what a vault is or what happens in a market, these are the existence of smart contracts.

And we believe that smart contracts can be programmable through a set of rules that cannot be changed, that takes certain actions, and that that smart contract, to an extent, can replace a lot of the operational compliance and security that sits on the back end of an institution. So that's Mhmm. That's the goal. So, obviously, as we as we interact with banks and talk to them about what happens if there's a stress event, what happens if there is, for example, a malicious actor that enters into a vault?

What happens if there is a liquidity event, a stress event? We talk them through all the scenarios so that they're very they're comfortable with that. This is going to take time. Yeah. This is a new technology replacing a financial machine that has evolved over the last seven to eight, ten decades and does its job very well. So this is this is what I think one of the misconceptions is that Morpho, from our perspective, is not here to replace banks. That is absolutely what we're not here to do.

We want to work with banks Yeah. To be able to present an alternative and possibly an addition infrastructure to what they already have. Because to be clear, there are just things that banks cannot do off chain that they can do on chain. It's as well as that, the collateral that sits off chain is much more visible and transparent when it's on chain. You can actually see what the underlying is. Yeah. Right? Two, everything is much faster. Right? Today, we still have a five day credit system. Wow. Right?

We should we should be able to access we believe that people should be able to access credit. They should be able to lend or borrow seven days a week, and everything is just much cheaper. If we're able to think about how smart contracts can take on some of the operational infrastructure versus the back end of an institution, we start to pass those cost savings directly onto customers. And I think

there's a very strong case. It's just going to take time. Yeah. I mean, we we hear more and more in our conversations definitely on the payments infrastructure side where the team's scaling. It's it's obviously very agentic heavy, but it's agentic heavy with programmable compliance because they can just move faster. It's more verifiable. And the underwriting time is just compressed so so fast. When we think about what what does on chain credit need that maybe doesn't exist?

We kinda talked about midnight and a little bit of fixed rate. Lending. You mentioned that that's kinda been a hot topic in your conversations. What role does fixed rate lending play in this conversation, and why is it impactful? Yes.

Today, what we have is what we call Morpho Blue. And Morpho Blue is protocol that has two central elements to it, vaults and markets. Vaults, essentially, what takes the capital in, and then you have an actor like a curator who then allocates how that capital should be deployed across various markets. The markets is where the yield is generated. Within markets, we've got, this variable interest rate. So that's all based on the utilization of the vault. Right. And there's no fixed redemption period.

Both of those things are foreign to institutions and banks. So, like, woah. Woah. Woah. Woah. Woah.

Woah.

Or, like, oh, there's some market movements. I mean, that's just not going to fly Yeah. With them. So Midnight has been an iteration and an addition to Morpho Blue. So it's not replacing Morpho Blue, but we believe that Morpho Midnight starts to offer a construct that gives predictability to institutions around what they what they care about. I want to be able to land for this period of time at this rate. That's what you're familiar with. That's the construct. And so we lost white paper two weeks ago.

We're inviting a number of partners into Beto over the next couple of months, and we hope to launch that at the end of q three. We're really excited. Excited. Yeah. Well, because, you know, when we think about evolving and maturing DeFi, we as Morpho believe that we can't sit over in the corner here and say that we're going to start replacing the current infrastructure. We have to look at what works. Yeah. And the banking system has built a lot of robust structures and constructs that absolutely do work.

We have to think about how do we adopt that into blockchain or a smart smart contract And

so we've seen, obviously, the the kind of the stress test of the Morpho Vault has been, you know, lending stable coins. It has been, you know, depositing tokens, Bitcoin, Ethereum, Solana, and that's just, hey. Look. This technology works. You mentioned earlier that now RWAs is becoming more and more of the focus, but there's a problem is that RWAs are such a blanket term for all these different primitives. How does Morpho think about and how do you think in Morpho about, like I said, falls for RWAs.

You know, SpaceX IPO is going crazy on on Solana. You've seen think Coinbase announced today, you know, they're opening up stock trading and even dividends getting paid through the platform. So I only have to imagine the next year, two years is is around the corner when these RWA vaults, you know, my my SpaceX vault or maybe my QQQ vault.

Yeah. It's, you know, it's such an interesting time to to be in the space that we're in because we've had this evolution over the last four or five years. So I led revenue for a sitting company, and I was primarily focused on working with, like, four or 500 institutions in The US. And in the last administration, we had to tiptoe around the terminology that we use. You couldn't use rewards for Oh, yeah. Like, it was like, oh. Oh, no. Yeah. Like, we had to be very careful. And institutions were like, sorry.

I don't am I do you have a dictionary? Yeah. What is slashing when we think about this? That sounds, like, terrible. I wanna anywhere near it. I don't wanna get slashed. Yeah. This is a black swan. Yeah. Like, our job was talking both to clients and institutions, but also to regulators as we thought about really opening the aperture of what was possible for, institutions look to to create yield off their their, digital assets.

And so things have now changed where we have, hopefully, clarity passing within The US over the next couple of months. And the evolvement of DeFi has kind of come from, like, we have assets, NFTs. We should trade those, and everybody, will see immense wealth and value if you hold onto these NFTs. And then we saw this kind of, like, ICO boom with new And blockchains being today, we're we're really moving into what we believe is this is the infrastructure period.

For so long, I would go home for Christmas dinners or vacations, and my parents would be like, So what do you do?

How's your Bitcoiner doing? I

like, Well, I just tell my mom I work for Bitcoin. It's easier. Yeah. Yeah. So the necessity of crypto was people trying to figure out what it was. It was almost this solution without a problem. I was talking about, you know, this blockchain that I that, you know, that I that we had just launched. You know, someone would say to me, well, what problem is it trying to solve? And I never had a really good answer for it. Yeah. That one that they could understand.

But we're now moving into an infrastructure period where we can solve real problems. Yeah. And crypto morphing into blockchain and stablecoins being the real the real statue or milestone of how blockchain infrastructure provides demonstrable value to the world. Like, one example is Coinbase, the product that we launched. Over 2,000,000,000 in deposits now and growing fast. The experience on the Coinbase app is is incredible. Yeah. It's like any web to product that you would use.

And the beauty about that is you have this very clean, simple three or four click process from the Coinbase app that abstracts away all the infrastructure around blockchain. And I think that is how we're going to experience crypto or blockchain in the future. It's going to be doing all the operational work

in the background to bring together different parties to supply this product, which is simple and easy to understand. Yeah. I guess, you know, I know you're on the institutional side, but maybe this maybe this is a little more philosophical. But thinking about the form factor of consumers or institutions, you know, accessing these products, whether it's through the Coinbase app or through, you know, Coinbase as asset management. I I was asked the other day by Chuck.

We were talking about there's more neobanks becoming like trading apps, and there's more trading apps becoming like neobanks, and vaults are getting in in place to them. Maybe just on your personal preference side, do you do you see a future where these neobanks, you obviously, you probably want them integrating vaults to some degree, but even, like, the I think the question I ask is, what kind of vaults are there? Is is there a line where we say, hey. Actually, this is maybe better as a separate user experience

so they don't start crossing paths? How would you how do you look at that? I mean, I think the beauty about Morpho is that it is modular, and the Vault construct can be used in a number of different ways. I think to your to your question, where we'll find the where we'll find the differences, whether you have institution using institutions using a Vault or you'll have a a fintech using Avolt for its customers, or whether you might have some type of employment provider at scale.

Oh, we're seeing the payroll companies that, you know, integrating the yield directly in the minute you get paid. Exactly. So, like, deal is a is a a project that we worked on, and they have evolved specifically for their own contractors, employees getting a yield on on basis. So the thing here that I think is important to stress is we are neutral infrastructure. We will thrive based on the value that other ecosystem participants bring. So curators, for example Yeah.

Are a are a huge actor around the success of Morpho. So when we think about Steakhouse, when we think about Gauntlet, when we think about a Galaxy, these are coming in, they have, you know, a kind of a DeFi and both institutional flavor. And as institutions come in and start looking at Morpho, those curators and actors are probably one of the more significant partners that they can choose Yeah. Around their program. And so that partner will be chosen around the use case. Is it a fintech, targeting customers?

Is it some sort of payroll company targeting contractors? Or is it a pretty conservative institution?

Yeah. Well, since we're in in Mexico City, where where do you see that attention being focused, you know, amongst maybe the attendees at the at the at this conference? Is it more on the embedded finance fintech side, maybe on consumer apps? Is it definitely more b to b right now?

Yeah. Good question. I think we'll see fintechs as first movers. They fintechs sitting on either Bitcoin, ETH, or blue chip crypto assets or a lot of stablecoin assets. The urine case is just a simple straightforward case for them to take advantage of. They'll probably fast follow with a borrow, opportunity. So one of their customers is sitting on a lot of Bitcoin, doesn't want to sell it, Mhmm. But wants to get liquidity from it, and and they'll follow with that.

And then second, I think we see the institutions are absolutely alive, like financial institutions. They're alive and testing what on chain credit looks like and means for them. But because of everything that we've talked about from a compliance security perspective and a regulatory perspective, the the the cycle there is probably somewhere between twelve to eighteen months.

Oh, wow. Feels like it's moving so fast. So, like I said, this is is this your first time here at this conference? My first time at this conference. Yes. I guess what if, say, you come back next year Yeah. What do you hope to see happen in the space in the next year? Yeah. Good question. I'm really excited about the Juno Vault. I just think having a nondenominated dollar Sorry. Really quick.

For those who don't know, because this my my social media manager asked me today, Juno is actually part of the Bitso umbrella families. We actually had we sat down with Ben Reed earlier today. So just a quick if you don't know Juno under the Bitso Bitso family. Bitso family. Yep. So I think if I was going back in a year's time, I would be looking at the performance of that vault, how many deposits they have.

I think I'd also be really excited about hearing stories like customers that are sitting on a lot of Bitcoin or sitting a lot of Ethereum didn't want to sell it, but actually were able to park it in the market. They were able to get liquidity from it, and they were able to, like, either purchase a car, send them pay for their kids' tuition fees. These are all live cases of what we've seen with previous customers.

So I think that for us, in our goal of helping the world access credit and maximizing human potential through that goal, being able to see that happen here in in in Mexico would be super cool. I I love that you mentioned just kinda seeing those downstream,

like, quality of life improvement for your finances. We talked with Guillermo from Eldorado, and he's like, we're opening a brick and mortar store in Bolivia. Super cool story. He's like, but did you know you can go buy a Toyota in USDT in Bolivia? And I'm like, that's super cool. Yeah. You know? And, again, you you can you think about, okay. Well, how am getting my USDT? Do I have other digital assets? Do I have digital assets that are RWAs,

you know, that are akin to how I already manage my finances? Yeah. And I think, like, this is the thing that gets us really fired up is, like, we believe that we're, like, our our our goal is to be able to, like, realize what is the potential of human ambition. And in order to realize the potential of human ambition, you need capital to be able to place bets on those individuals that want to take it that want that wanna take that step.

And to access that credit, both across developed and on developed and and and developing markets, it's been incredibly tough. Yeah. And we believe that the world should be able to meet both lenders and borrowers at an infrastructure that allows the market to decide whether I'm going to lend to you or you're going to lend to me. So if you turn up to Morpho and you say, hey. I've got this Bitcoin, or I'm a business and these are my receivables, or I have a house and this is these are the tokenized deeds.

Any of those type of signals will display a level of trust. I will take that trust, and then the market will price. How am I going to give that capital to you based on that trust signal? And so what we're seeing here today is something with digital assets and crypto backed loans. Where we go tomorrow, to our point about RWAs, is, like, the potential is is limitless. Yeah.

I thought about Figure and the Hashira and the Prime Vault a ton on this show, so I love that you kinda slid that in at the end because I think it's just, like, a perfect example of where the space is going. And, again, it's it's not as sexy as Bitcoin and, you know, Ethereum and crypto and and, you know, all that, but it's, like, they have over 1,000,000,000 in deposits right now, and who knows where they're going next. I probably couldn't have written a better last segment mic drop moment.

So I think we're gonna wrap up here, let you get back to the conference. Dennis, it's been great sitting down with you. We'll be right back. That was our interview with Dennis from Morpho, head of institutional growth. We'll be back shortly.