Bitcoin is losing momentum, liquidity is retreating, and altcoin volumes are decreasing. In times like these, attention shifts from sectors to narratives.
Why is ZEC using a pump? Because Bitcoin is privacy-focused. Why did ZK pump? This is because Ethereum focuses on privacy. I understand. Aave and Morpho are two robust DeFi protocols. While Aave is a proven OG protocol, Morpho is the “new kid” on the block. In this article, let’s take a closer look at Aave and Morpho.
By the way, here’s a great article from Aave featuring Arbitrum’s latest features.
Tokenomics and market data
Aave is trading at $195, above the key support at $169. Both $169 and $129 could be good entries. The closest resistance levels are $251 and $333.
Market capitalization: $3 billion.
FDV: $3.1 billion.
TVL: $35.2 billion.
You can earn 3.6% when you supply USDT on AAVE, while Morpho offers 3.8% APY on USDC.
Morpho is trading at $1.66. Still within range. The next support is at $1.27.
Market capitalization: $575 million.
FDV: $840 million.
TVL: $12.5 billion.
This means that Aave and Morpho are opposite sides of the same equation. Both solve loans, but with different philosophies.
One is built around pooled liquidity, the other around separation and precision.
How do Aave and Morpho work?
Aave operates the pool. You deposit, someone borrows, and the smart contract takes care of the rest. It’s simple, stable and reliable. Aave has over $35 billion in TVL across 12 chains.
Aave is what makes DeFi lending available. The protocol features liquidity aggregation and floating interest rates. AAVE has a permissionless financial market with pooled risk and transparent collateral. But Aave has its own issues. When the utilization rate of funds decreases, liquidity becomes idle.
Utilization ratio is simply the ratio of borrowed funds to TVL expressed as a percentage. This means that if your utilization rate is low, Aave will automatically lower your interest rate. The higher the utilization rate, the higher the interest rate.
The upcoming Aave V4 aims to change that. V4 helps with Aave migration. hub and spoke model. This means there will be a central liquidity hub with modular “spokes” for specialized markets. This system helps make Aave even more efficient.
Morpho has a highly decentralized lending model. There is no concept of a single, centralized shared pool. As you can see from the TVL screenshot above, Morpho has many specialized pools with different risks.
Morpho connects borrowers and lenders directly. If there are no lenders or borrowers, Morpho goes through the Aave or Compound pool. This kept Morpho’s yields high and eliminated idle capital. Utilization can reach 100% without risk. Aave, on the other hand, limits usage to about 80-90%.
What about risks?
Aave spreads the risk. This is because all borrowers and lenders share the same liquidity pool. A sharp fall in collateral could trigger a total liquidation. This means that Aave’s risk mechanism is robust but systematic.
At the same time, Morpho isolates risks. Each market is a separate instance. This means that a collapse in one market will not affect other markets. This is cleaner, more secure, and easier to audit.
Morpho has several components.
- Morpho Blue allows anyone to create an isolated lending market with immutable parameters. Each market is its own risk container.
- Morpho Vaults offers carefully selected strategies for passive yield. These components further isolate risk.
That comes with the trade-off of fragmented liquidity. Unless a vault aggregates liquidity into a central pool, an isolated market means that liquidity is dispersed.
Tokens and governance
AAVE is a utility as well as a governance token for the Aave protocol. Morpho It is also a utility and governance protocol for the Morpho protocol.
Aave has also started Goits overcollateralized stablecoin. GHO experienced volatility in its first year of existence (2024). However, as of 2025, GHO is very stable.
Aave’s governance is active, complex, and extensive. Each upgrade goes through AIP or Aave improvement suggestions.
Morpho’s governance is lean. An immutable market means fewer decisions to be made. Vaults and Borrowers operate independently.
Has there been a security incident with AAVE and MORPHO?
Aave was hacked once. Aave’s core protocol has never been hacked. There have been many failed attempts in the past.
Aave’s peripheral contracts were exploited for about a year. $56,000. User funds were not affected.
During the same period, two security incidents occurred at Morpho.
The first was a white-hat MEV operator (c0ffeebabe.eth) who misappropriated approximately $2.6 million in assets. Funds were recovered.
conclusion
Aave and Morpho are two important players in the DeFi space. Aave is an OG protocol that has stood the test of time. Although Morpho is new, it has strong roots in the Base ecosystem.
Both are DeFi gems with different approaches to scalability.
The FDV/TVL ratio for both protocols is similar. Aave has a high value of 0.088 and Morpho has a value of 0.067. It also means that Morpho may be much more undervalued than Aave.
If you are a supplier, it makes more sense to use Morpho as it offers a better APY. If you are a borrower, Aave is a better choice as it offers higher liquidity.
For long-term holdings, Aave is a smart choice. Aave could be next as the OG protocol is starting to be implemented.
Disclaimer
The information provided by Altcoin Buzz does not constitute financial advice. It is for educational, entertainment, and informational purposes only. All opinions and strategies shared are those of the writer/reviewer, and their risk tolerance may differ from yours. We do not accept any responsibility for any losses you may incur as a result of investments related to the information provided. Bitcoin and other cryptocurrencies are high-risk assets. Therefore, please conduct thorough due diligence. Copyright Altcoin Buzz Pte Ltd.
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