Morpho co-founder responds to concerns about some funds pool "Liquidity shortage": it is not a system flaw, but a natural operating mechanism under pressure.

On November 6, Morpho co-founder Merlin Egalite published a response to the issue of “insufficient liquidity” in some liquidity pools, stating, "When the market is under pressure, people often choose to reduce risk, which means that many lenders will try to withdraw all their funds at the same time, leading to an increase in capital utilization and a drop in liquidity. In extreme cases, there may even be a situation where there is no available liquidity in the short term. This is not a systemic flaw, but a natural response mechanism of the lending pool under stress. To restore balance, the interest rate model will automatically raise borrowing rates. Taking Morpho as an example, its target capital utilization rate is 90%, which means that in most cases, about 90% of the deposited funds will be borrowed out. When the utilization rate skyrockets to 100%, interest rates will increase fourfold. In the vast majority of cases, market interest rates typically return to balance within a few minutes (around 90% utilization), while during times of greater market pressure, recovery may take several hours. Furthermore, the so-called “insufficient liquidity” is localized and controllable, only appearing in individual markets that are out of balance. A few days ago, out of Morpho's 320 liquidity pools, only 3-4 experienced a brief period of insufficient liquidity, while the rest were operating normally. Therefore, claims that “the entire protocol is out of liquidity” are misleading. Insufficient liquidity does not represent losses or bad debts. It simply means that a large amount of funds is borrowed out in the short term, and the market will react in real-time, repricing risk and seeking new balance points.