Morpho Co-Founder Addresses Liquidity Shortage Concerns Amid Market Strain

On November 6, 2025, Morpho co-founder Merlin Egalite addressed liquidity shortages in DeFi lending pools amid market pressure.

This natural mechanism impacts liquidity and borrowing rates, reflecting systemic stress in decentralized finance.

Morpho’s Liquidity Solutions Amid Market Pressures

Merlin Egalite, co-founder of Morpho, addressed the issue of liquidity shortages in the platform’s lending pools. While affirming there is no systemic flaw, Egalite described it as a typical response to market pressures.

With the market under stress, lenders tend to withdraw funds simultaneously, increasing utilization rates and decreasing available liquidity. To restore balance, the interest rate model temporarily raises the borrowing rate. As Egalite stated, “When the market is under pressure, people often choose to reduce risk, which means that many lenders will simultaneously try to withdraw all funds, leading to an increase in fund utilization rate, a decrease in liquidity, and in extreme cases, 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 pressure. To restore balance, the interest rate model will automatically raise the borrowing rate.” Check out Morpho Labs’ insights into crypto technology.

Community reactions have varied, with some investors expressing concern over potential systemic risks. However, Morpho Labs assured users that their systems are functioning as intended during these withdrawal cycles.

Historical Liquidity Challenges in DeFi Explored

Did you know? During past market downturns, similar liquidity issues have occurred, notably affecting DeFi protocols like Compound and Aave, reinforcing the need for robust reaction models.

CoinMarketCap data shows Morpho’s current price at $1.67, with a market cap of $594.65 million and a 24-hour trading volume dip of 46.16%. Over the past 90 days, Morpho’s price has fallen by 18.58%, impacting investor sentiment and protocol stability.

Insights from the Coincu research team suggest a focus on improving risk management frameworks and regulatory vigilance as potential outcomes. The repeated systemic patterns highlight the importance of protocols enhancing their resilience measures. To see the Ethereum Foundation’s perspective on community updates, visit their tweet.