What is a modular lending protocol? What?

The DeFi lending industry has been sluggish, mainly due to complex multi-asset lending pools and governance-driven project decisions. Against this background, the modular lending protocol was launched. Many people still don’t understand what a modular lending protocol is? According to the data, the modular lending protocol is a design concept of a lending protocol that aims to make the lending function more flexible, scalable and customizable. This protocol is usually composed of multiple independent modules, each module is responsible for different functions or business logic. These modules can be combined and configured according to needs to implement various lending services and functions. The editor below will give you a comprehensive introduction to the modular lending agreement.

What is the modular lending protocol?

Modular lending is a flexible lending framework that allows the creation of customized lending solutions through a combination of different modules. The modular lending protocol allows different modules to be selected and configured according to specific needs, thereby enabling flexible lending services. For example, different modules can be configured according to different asset types, interest rate models, collateral requirements, etc.

The modular design allows the protocol to be easily expanded and upgraded, adding new functional modules or adjusting existing modules to adapt to changes in market demand and new business scenarios. Through modular design, risk control and management can be better achieved. For example, risk assessment modules, collateral management modules, etc. can be independently designed to help the platform effectively manage risks.

Modular lending protocols are usually designed based on open standards and protocols and have strong interoperability. This means that different platforms or projects can be developed based on the same modular protocol, promoting ecosystem development and cooperation. Through modular design, the user experience can be better optimized, more personalized lending products and services can be provided, and the needs of different user groups can be met.

What are the modular lending protocols?

The currently common modular lending protocols are mainly MorphoLabs and EulerFinance. The following is a detailed introduction:

1. MorphoLabs

Morpho was initially launched as an improver of lending protocols and successfully It has become the third largest lending platform on Ethereum, with deposits exceeding US$1 billion. Morpho's solution for developing a modular lending marketplace consists of two separate products: MorphoBlue and Meta Morpho.

Before Morpho Blue, fragmented liquidity was the main criticism of the isolated lending market. But the Morpho team solved this challenge through aggregation at both the lending pool and vault levels.

Lending to isolated markets through MetaMorpho vaults avoids liquidity dispersion. Liquidity in each market is aggregated at the vault level, providing users with withdrawal liquidity comparable to multi-asset lending pools while maintaining market independence.

MetaMorpho Vault enhances a lender’s liquidity position, making it better than a single loan pool. Each vault’s liquidity is centralized on MorphoBlue, benefiting anyone who lends to the same market.

Vaults significantly enhance lenders’ liquidity. As deposits accumulate on Blue, subsequent users deposit funds into the same market, increasing withdrawal funds for users and their vaults, freeing up additional liquidity.

2. EulerFinance

Euler V1 changes DeFi lending by supporting non-mainstream tokens and a permissionless platform. Euler V1 was eliminated due to a flash loan attack in 2023 that caused it to lose more than $195 million.

Euler V2 is a more adaptable modular lending primitive, including EVK and EVC.

Euler VaultKit (EVK) allows permissionless deployment and customization of lending vaults. The Ethereum Vault Connector (EVC) enables vaults to connect and interact, enhancing flexibility and functionality.

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