Morpho grinds a sword in four years: Fixed interest rates will bring on chain lending out of the crypto native circle Author: Paul Frambot Compiled: Deep Tide TechFlow Deep Tide Introduction: Paul Frambot, founder of Morpho, personally announced that Morpho will soon launch a fixed rate lending market. His logic is clear: variable interest rates are just an introduction, institutional capital requires predictable fixed terms, and the immutable contracts+over 30 independent curator ecosystems built by Morpho over the past four years are the infrastructure that can only be implemented at this moment. This is not just a product update, but the starting point of what Frambot believes to be a 'leap in on chain lending volume'. The full text is as follows: On chain lending has come a long way: billions of dollars in liquidity, thousands of markets, and a growing ecosystem of curators and institutions. But the variable interest rate market is just the tip of the iceberg of what on chain lending can be. The next stage is fixed interest rates. This is the fundamental element that can bring institutions in and increase the scale of on chain lending by several orders of magnitude. And this is exactly what @ Morpho is about to bring to DeFi. Why do we need a fixed rate market? In traditional finance, most loans are built on fixed terms. Long term vision cannot be financed with capital that can be withdrawn at any time. Variable interest rates have played an important role in guiding on chain liquidity, but they are not sufficient to support DeFi's next steps. Fixed interest rates are crucial for three core reasons: predictability, the most direct one. For real usage scenarios - whether it's cross chain arbitrage, buying a house with asset leverage, or financing a business - lenders and borrowers need to know what they will earn or pay during the duration of their position. Built for Institutions: The largest banks, asset management companies, and institutional investors always operate around fixed inputs and clear terms. They will not rebuild their capital operations around floating interest rates that fluctuate with arbitrary curves, they want to decide the terms. The on chain fixed rate market gave them a natural entry point, according to their terms, in a language they were already familiar with. The market should price, not protocol: DeFi has learned to outsource risk selection to curators and asset managers. But interest rate setting still occurs within the agreement, governed by formulas or DAOs. In a true fixed rate market, those who bear the risk also set the interest rate. This is the way to obtain accurate and competitive trust pricing. It's time to talk about terms. If fixed interest rates are so important, why has DeFi been built around variable interest rates from the beginning? Because the early environment made it almost impossible to achieve. Lack of sufficient mature participants: Early DeFi users were mostly passive users, without enough professional players to proactively curate and manage risks on a large scale, and without enough liquidity to attract mature participants. Gas is too expensive: This forces each user to share a single index accounting method with the same interest rate. In that environment, exchanging the ability to externalize and express interest rates for simplicity is a rational choice. Since then, the ecosystem has come a long way. Now, the blockchain space is cheaper, liquidity has increased by several orders of magnitude, and there is a whole set of active and mature participants on the chain - such as curators and market makers - who understand both encrypted tracks and traditional fixed term structures. The early attempts at fixed interest rates were valuable and taught us an important lesson: we should build a capital pool of variable interest rates on top of the fixed interest rate market, rather than the other way around. Basic primitives and ecosystems must be in place simultaneously. This is the first time in history. The four years of Morpho come down to the need for proper role allocation, an active ecosystem, and truly neutral infrastructure for this scaled fixed interest rate. Morpho spent four years building these three things. An Infrastructure Game: In Morpho's vision, the protocol is not the bank, but the bank's infrastructure. Curators manage risks, while Morpho provides a technology stack and network. It's time to outsource interest rate management as well. An unlicensed curator ecosystem: Over 30 independent curators are now managing billions of dollars on Morpho. They proactively price, configure, and manage their exposure on a scale every day. The fixed rate market can only operate when mature participants are present for trading. Morpho already owns them. The immutable foundation: The core contract of Morpho cannot be changed or upgraded by anyone, including ourselves. In a fixed rate market, counterparties need to know that the rules will not change midway. An immutable and non governing foundation layer is the only basis for them to collaborate together. What comes next? Since the launch of Morpho Blue, we have been building this project, dedicating four years of learning, iteration, and relentless effort to strive for perfection. The large-scale fixed rate market is one of the most difficult problems in DeFi, and we will not release it until we have perfected it. Our upcoming release of Morpho (TBA) will bring the complete term structure to the chain, allowing DeFi lending growth to soar by several orders of magnitude. This is the most important step for Morpho so far: one of the missing pieces of the puzzle will allow on chain lending to step out of its crypto native circle and open up to any allocator, treasury, or financial institution who wishes to deploy long-term capital on the chain. More news is coming soon.