Morpho Co-founder Responds to Partial Liquidity Pool "Insufficient Liquidity": Not a System Bug, but a Natural Operation Mechanism under Stress

On November 6th, Merlin Egalite, a co-founder of Morpho, responded to the issue of "liquidity shortage" in some of the pools. He stated, "When the market is under pressure, people often choose to reduce risk. This means that many lenders will simultaneously try to withdraw all funds, resulting in an increase in the fund utilization rate, a decrease in liquidity. In extreme cases, there may be 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." Taking Morpho as an example, its target fund utilization rate is 90%, which means that in most cases, about 90% of the deposited funds will be lent out. When the utilization rate surges to 100%, the interest rate will increase fourfold. In the vast majority of cases, the market rate usually rebalances within a few minutes (around 90% utilization rate). However, in times of significant market pressure, the recovery may take several hours. Furthermore, the so-called "liquidity shortage" is local and controllable and only appears in individual markets experiencing imbalance. In the past few days, out of Morpho's 320 pools, only 3-4 experienced brief liquidity shortages, while the rest of the pools operated normally. Therefore, claims that the "entire protocol is suffering from a liquidity crisis" are misleading. Liquidity shortage does not represent losses or defaults. It simply means that funds have been lent out in large quantities in the short term, and the market will react in real time, reprice risks, and seek a new balance.