Morpho’s outstanding loans climbed to a record $5 billion on Sept. 1, according to Messari, marking another step up for the decentralized lending protocol as it closes some of the distance with market leader Aave.

The new high also highlights where Morpho’s activity is concentrated. Borrowing on the platform is overwhelmingly tied to stablecoins, while recent expansion has been driven heavily by Base and Coinbase’s Morpho-powered crypto-backed lending product.

Stablecoins dominate borrowing activity

Messari reported that 95% of Morpho’s outstanding borrowing is denominated in stablecoins. USDC alone accounts for 62% of the total, making it by far the largest single asset in the loan book.

That mix suggests the protocol’s users are primarily seeking dollar-denominated credit against crypto collateral rather than taking on leveraged exposure to more volatile tokens. The record loan total therefore reflects strong demand for stablecoin liquidity within onchain lending markets.

Base has become the main growth engine

Morpho has identified Base as a central source of its recent growth. In an Aug. 6 post, the protocol said deposits on Coinbase’s layer-2 network had surpassed $5 billion, representing more than 70% of all deposits on Base at the time.

The protocol linked that momentum to its so-called “DeFi Mullet” model, the crypto-backed loan product Coinbase launched on Morpho infrastructure in January 2025. According to Morpho, that offering has since generated about $1.3 billion in outstanding USDC borrowing backed by roughly $2.5 billion in cbBTC collateral.

Aave remains ahead despite a narrower gap

Even with Morpho’s latest milestone, Aave remains the clear leader in decentralized lending. Data cited from DefiLlama shows Aave with more than $12.7 billion in active loans, compared with Morpho’s $4.83 billion.

The difference is also visible in total value locked. Aave stands at $17.7 billion, while Morpho is at $9.55 billion. Still, Morpho’s record loan figure indicates that the gap has tightened from the perspective of outstanding lending activity, even if Aave continues to hold a sizable lead overall.

Growth has brought more scrutiny to market structure

Morpho’s larger footprint has also put it at the center of unusual incidents tied not to its core code, but to markets and curators built on top of the protocol. DeFi researcher DeFi Warhol pointed to a Paxos PAXG oracle misconfiguration in which a decimal error sharply overstated collateral value.

According to that account, the mistake allowed a borrower to draw about $230,000 in USDC against roughly $350 worth of PAXG. The episode prompted criticism from Marc Zeller and wider debate over losses and risk, with some participants arguing that such outcomes reflect the risks lenders are paid to assume rather than a direct failure of the base protocol.

Fresh capital and the next benchmark

Morpho’s rise has coincided with strong investor backing. The protocol reportedly raised $175 million in June in a round led by a16z crypto, Paradigm, and Ribbit Capital, with Circle’s venture arm and VanEck also participating. The round reportedly valued Morpho at as much as $2 billion.

Cofounder Paul Frambot helped launch the project first on top of Aave before shifting its model toward allowing others to create lending markets with custom risk settings. For now, the next confirmed benchmark is whether Morpho can keep expanding beyond its current Base- and stablecoin-led concentration while continuing to narrow the lending gap with Aave.

Source: Cryptopolitan