Compound adopts Morpho’s tech for new Polygon vaults in controversial Gauntlet-led move

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On Thursday, decentralized lending protocol Compound launched a new series of vaults on Polygon via a partnership with web3 advisory firm Gauntlet and rival lending protocol Morpho. Depending on one’s perspective, the move is being cast as either a way to breathe life into one of DeFi’s longest-running projects or as a complete disembowelment of Compound. Though intended for Compound to regain market share, it is seen by some as a surrender of its core technology. While the partnership could generate millions in revenue, critics argue it puts Morpho’s growth ahead of Compound’s and raises potential conflicts of interest since Gauntlet is playing a central role in both governance and execution.Risk management firm Gauntlet proposed the controversial idea in late January. The aim was to help Compound recover lost market share from competitors like Aave, the largest lending protocol on Polygon, by teaming up with one of the fastest growing onchain credit markets in crypto. However, the proposal is also a blow to Compound, which would theoretically profit from the arrangement, if successful, at the expense of essentially abandoning its native tech stack. Worse, Compound is paying for the honor. Both Compound DAO and Polygon are putting up $1.5 million worth of native tokens to bootstrap growth and acquire users. Compound, launched in 2018, was one of the main catalysts of the mythical “DeFi Summer”. In 2020, founder Robert Leshner launched a governance token, COMP, and handed the reins of the protocol to the community in one of the earliest experiments with community governance.Although an early success, Compound has lost steam. COMP trades around $40 today, down from a peak above $850 in 2021 while its total value locked is down to about $2.3 billion from a high above $12 billion. This puts it below the TVL of Morpho, a protocol launched in 2022 (the same years as Compound’s latest V3), with about $3.2 billion in assets. “Since Compound V3 was released in August 2022 by Compound Labs, the protocol has not made meaningful updates to its tech stack,” Gauntlet wrote in its proposal. “Over the past year, Compound’s market share has declined. Compound V3’s competitiveness will be further pressured with the upcoming versions of Aave V4 and future iterations of Morpho and other protocols.”Mutually beneficialUnder the plan, which passed with nearly 93% of the voting...

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