Aave internal conflict escalates, Morpho quietly doubles: Is the lending throne about to change hands?

Author: Dingdang, Odaily Planet Daily

Shitcoins are dead, a consensus that crypto users have been reluctant to admit but must face over the past year. Even the once-blue-chip tokens have fallen into prolonged sideways trading or decline amid the ongoing market downturn, making it hard to see any bright spots.

However, amidst this overall sluggishness, MORPHO tokens rebounded from a low of $0.96 in early February to the $1.8–$1.9 range, doubling against the trend. On the daily chart, this rebound has essentially formed an arc bottom pattern, possibly signaling a bottom reversal. Is this rise just a short-term market sentiment boost, or a trend initiation driven by fundamentals and structural factors resonating together?

When the old regime begins to consume itself

Morpha is a lending protocol launched in 2021. Initially, it operated similarly to lending protocols like Aave and Compound, but in 2023, Morpha introduced Morpho Blue (its current main version), transforming into an independent, permissionless lending layer, firmly establishing itself at the forefront of the Ethereum lending ecosystem.

However, in the lending space, Aave remains the largest and most well-known leader—an undeniable fact. Recently, Aave has been embroiled in serious governance controversy due to a proposal by founder Stani that introduced a $51 million “Aave Will Win” fund framework.

This fund was originally intended to support new product development, with the proposal explicitly stating that future revenue from related brands would 100% flow back into the DAO treasury—a seemingly ideal move for the project to “cede control and share benefits with the community,” but unexpectedly ignited long-standing internal conflicts within the DAO.

The reason is that Marc Zeller, a key figure in DAO governance and founder of ACI, publicly released an “audit” report on February 25, criticizing Labs’ low capital utilization and revealing that over the past few years, the DAO had taken out approximately $86 million USD, with little transparency disclosed. Meanwhile, DAO core developer BGD Labs announced it would exit in April 2026 due to governance friction. The founder’s high voting power has also led to dominating controversial proposals, further plunging the DAO into a tug-of-war over power and fund allocation. As early as December last year, cracks had already appeared within the Aave community—see “Big Brother Cutting Losses and Clearing Positions, Can AAVE Survive the Deepening Divisions?”

Now, as Aave slows down due to governance disputes, Morpho’s simpler governance model has begun to attract attention. Aave exemplifies the first-generation lending governance paradigm—“DAO-led, global parameter adjustments,” where all risk parameters (like collateral factors and liquidation thresholds) are decided by DAO-wide voting. While this design ensures overall stability, it can easily lead to governance bottlenecks—any parameter tweak requires broad community consensus, and even minor disagreements can delay decisions, especially during contentious periods when paralysis is more likely.

In contrast, Morpho adopts a modular, market-driven second-generation approach: the protocol itself is highly permissionless, allowing anyone to create isolated markets at any time. Each market’s risk parameters (such as LTV, interest rate curves, liquidation incentives) are set by independent risk managers (curators), rather than relying on global DAO votes. This means risks are strictly localized within individual markets, responsibilities are dispersed to specific curators, and decision-making speeds are greatly improved—no need to wait for broad consensus, as curators can quickly iterate parameters based on market conditions. This design greatly reduces governance friction and decision delays.

When the old regime begins to internalize, it might be the perfect opportunity for new forces to overtake.

Data validation: Does it deserve this window?

Let’s examine Morpho’s fundamentals to see if it has the potential to challenge Aave’s throne. According to TokenTerminal data, in Q3 and Q4 of 2025, Morpho’s TVL remained above $9.5 billion, growing about 80% compared to the first half of the year;

Active loan volume within the protocol also stayed above $3.5 billion in both Q3 and Q4, with an approximately 80% year-over-year increase.

In terms of one of the most core metrics for DeFi protocols—protocol revenue—except for a relatively weak Q2, the other quarters remained stable around $50 million.

User growth is even more straightforward: quarterly active addresses surged from about 30,000 in Q1 to around 400,000, showing strong organic growth momentum.

Although Morpho’s current TVL and active loan scale still lag behind Aave, its rapid user growth has made it one of the most promising “dark horses” in the lending space. Especially in 2025, when the entire DeFi sector faced pressure and pain, Morpho’s performance can be seen as a countercyclical high-growth achievement, proving its product model has withstood market tests. Protocols that can continuously attract funds and users during a bear market often have stronger explosive potential in the next cycle.

Institutional variables: When traditional capital starts to bet

Strong fundamentals only prove that the protocol has a solid foundation, but a bigger catalyst for changing market cap trends is the entry of traditional financial giants.

On February 13, Wall Street asset manager Apollo Global Management signed a major cooperation agreement with Morpho’s behind-the-scenes non-profit organization, Morpho Association, namely Apollo plans to gradually acquire up to 90 million MORPHO tokens over the next 48 months, accounting for about 9% of Morpho’s total supply. At the current price of $1.8, this is roughly valued at $180 million.

From a trading perspective, this will generate sustained buy demand for MORPHO. But if you know Apollo, you’ll realize this might be more of a strategic infiltration into DeFi.

Apollo manages nearly $940 billion USD in assets, with its private credit business known for high yields. The on-chain world can provide leverage amplification and global instant liquidity for it. Since 2024, Apollo has been exploring the crypto industry, mainly focusing on RWA (real-world assets), partnering with Securitize to tokenize its diversified credit strategies into ACRED, which has now reached a scale of $130 million.

However, the core challenge of RWA on-chain has never been issuance but liquidity release. Assets can be tokenized, but without efficient lending markets and leverage environments, their yield potential is hard to realize. From Apollo’s layout, it’s reasonable to infer that it likely aims to leverage Morpho’s lending markets to amplify its credit product yields. Morpho’s modular lending structure provides a natural fit for RWA—isolated markets, independent risk parameters, and customizable leverage environments—these mechanisms are far more attractive to institutions than parameter battles under centralized governance.

This hypothesis is supported by evidence: although Morpho is permissionless, key parameter options still require governance expansion via Morpho DAO. If Apollo holds a significant amount of MORPHO tokens, it will gain voting rights, potentially pushing for RWA-friendly parameters. If Apollo’s strategy materializes as expected, Morpho’s modular design could attract more institutional capital, becoming a key infrastructure for on-chain institutional lending amplification. Such institutional endorsement would not only strengthen Morpho’s competitive edge but also narrow the gap with Aave—especially as Aave is mired in governance turmoil.

Conclusion

Aave’s governance crisis may continue to drag down its market cap and liquidity in the short term, but Morpho, leveraging its product structure and institutional catalysts, is quietly reshaping the competitive landscape of the lending sector. Whether Morpho can truly challenge Aave’s throne remains to be seen—by tracking its TVL growth and more traditional finance players’ follow-up. But at least for now, the power shift in the “second-generation lending” space has begun.

Risk warning: MORPHO tokens will undergo large unlocks in March, belonging to Morpho DAO, Morpho Association reserves, and core contributors. Short-term liquidity impacts should be closely monitored.