Bryce Paul (5:00)

Awesome. And I take it things have surpassed your expectations when you start, when you started, I'm sure you didn't expect all this success. You're just like, hey, we're just a bunch of guys developing, maybe it'll stick. We're going to throw noodles at the wall and see, see which ones stick. And here you are.

Merlon Egalite (5:18)

Yeah, actually it was a student project. So literally we started during our studies. So I mean the first year we raised funds like two times and we hired like freelancers and full time employees while we were still studying. And so I think if you had told me that we would be there at that time, I would not believe you to be here and but yeah, I guess luck and hard work, I guess.

Brendan Veeman (5:53)

Yeah. And you originally specialized in mathematics and artificial intelligence, right?

Merlon Egalite (5:58)

Yeah, yeah, yeah, exactly. So that's funny because I mean now we have the convergence of AI Blockchain again. But it's been a few years that haven't done any AI machine learning stuff, but now it's converging again. So I think we'll need to have those kind of skills and knowledge maybe to leverage them because I do think that it will be one big sector if we take like a five or ten years scale.

Bryce Paul (6:37)

Yeah. It's also why maybe you know, the new President of the United States talked about the AI and crypto czar, not like two separate roles. Not. Yeah, yeah, not separate, it's like very intertwined. So I agree with you. I think it's going to be the same.

Merlon Egalite (6:51)

Yeah. Both technologies have a lot of implications on jobs, on societies, on the overall tech. What you can do with just one human right now, maybe you'll be able to do with no human at all, or one human will be able to do what hundred or thousands of people can do right now. So plus blockchain, it will have like drastic impact on society for sure. So I do think it's an important thing to add the both at the same time.

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Brendan Veeman (9:33)

And you know, we've been seeing some really cool stuff around both the crypto and the AI sector recently. I mean, Deep Seek has been a huge kind of wake up call.

Merlon Egalite (9:41)

Yeah.

Brendan Veeman (9:42)

And I think that with the growing adoption that crypto's getting, I saw that there's a ton of US money that's going to be allocated towards artificial intelligence moving forward. And what this really does is competition inspires innovation, especially when there is this intentional focus to get both crypto and AI regulated, get them funded, and then also have big competition happening at the same time. I think what this does is it really accelerates the process of, of growth. And I think that what we've seen over the last four years can really be condensed kind of moving forward. I think it's going to take a fraction of the time to see the same amount of growth moving forward because of this very intentional effort towards both of these fields. So we're excited to see how they intersect. And I think, you know, both you guys are right. We're going to see some really cool stuff moving forward.

Bryce Paul (10:33)

Yeah, man. And speaking of cool stuff moving forward, let's just touch on sort of the biggest thing that came out in the news recently just so happened to be by the, the DAO that you're working with Morpho, whereby, you know, normal users of the Coinbase retail application can actually get loans against their Bitcoin. And it's almost like, you know, for some people being like, well, what? That doesn't make much sense to me. You know, that doesn't make much sense whatever, because some people have said that they don't get it. It's almost like a heloc, right? Like a home equity line of credit, like where you could take a loan out against the equity that you've built up in your home. You know, you could get that through a lot of places very easily, very quickly. You pay a certain, you know, interest rate. But now you could do that. And it's not putting up your home as collateral, it's putting up your bitcoin as collateral. So walk us through this process. How did it come to be from the very start and where is it now and kind of where's that whole platform kind of going? Because I do believe there's a, a threshold. You can't borrow more than 100 grand.

Merlon Egalite (11:35)

Right about this threshold just shortly. I think it might be just at the beginning. Right now the, the rollout is just for 1% of Coinbase users and it will be over time increased. It's just like so that they have the time to test and make sure that the user experience is perfect. But how can they come to do that integration with mofo? I think Coinbase has understood that using blockchain as a backend is so much more efficient than using tradfi guardrails. I mean rails, sorry. Just because you remove all intermediaries, you have kind of a standardized way of interacting with any protocol and you don't need to request access to APIs. They cannot be shut down. You can send and transfer to stablecoins to whatever the address, whenever in the entire globe. And I think Coinbase has really understood this and this kind of like defi minute meme that we are seeing more and more in the defi space where you have the fintech or centralized exchange user experience that is super easy to draw loan. It's super easy to trade stable coins or whatever shit coins you want. But yes, you're right.

Bryce Paul (13:21)

No, that's great. I was just laughing.

Merlon Egalite (13:23)

Yeah, okay. But everything was done on servers before, at least for the centralized exchange. And so this was like for each server you need to pay the cost, you need to hire a bunch of like security people people you need to also have like servers on different location, etc. Everything adds up and that's like a huge cost to the fintech or the centralized exchange operating the service or the product. But if you externalize all those kind of things to a blockchain that is fully immutable, where the verification is done automatically because it's just less code, then you drastically reduce your, your cost. And so giving access to that product to Coinbase users is just a no brainer for them. And I think they have understood this before anyone else and they have been kind of the first mover into that direction. And this is kind of pointing the way forward for every other fintechs in the world.

Bryce Paul (14:36)

And I guess my, my thought here is you know who, you know where, where's the, the risk that Coinbase takes with this and what's their responsibility to their clients versus where's like, you know, with the risk being assumed by Morpho, you know, kind of like how does that all shake out? Like you know, if, if something, if there was a vault that went insolvent or something like that.

Merlon Egalite (15:02)

Right. So first I'm not a legal expert.

Bryce Paul (15:06)

So I will not financial advice, not nothing investment advice.

Merlon Egalite (15:11)

So they are not interacting with a vault yet there's no. It's not to earn products. So vault is only on the landing side on, on mofo. So maybe I can speak about briefly about how mofo works. You have that lending primitive with you can create many markets permissionlessly create markets. Those markets are isolated so that if something bads happen on, on one market it does not affect the others. Completely different from the lending pools that like AAVE or compound have. Which is great to have those isolated market because you can basically create an infinite number of markets without increasing the overall the systemic risk of the protocol. Anyway, Coinbase is interacting letting users interact only with one market which is cb, BTC as collateral and USDC as loan asset. So it's one market, it's fully immutable. Risk parameters cannot change. There's no governance process in this. So they are basically trusting immutable code deployed on a decentralized blockchain. So on that end the Coinbase app is based on the Smart Wallet Coinbase Smart Wallet. So users or decide not to use that product, it's up to them. It's fully non custodial. So I don't think they are taking any risk in that because at the end of the day the user that has his token that is taking the decision and it's explained that it's powered by mofo, behind the scene etc.

Brendan Veeman (17:06)

No, I think that makes sense and I want to circle back to something that we were just talking about a second ago because I was thinking a little bit deeper about it, you know, when it comes to how these loans will be used I think that there's a lot of different ways that people can go about it. And so I'm curious, you know what you think are the most common ways that you're going to see these loans used? Because from my brain, you know, I'm a trader, I'm notorious for it. I love my trading when I think of this and I can take, you know, I can kind of get a loan on my Bitcoin. Well, maybe I want to go trade some altcoins, you know, maybe I want to hold on to that bitcoin for a long term hold. But maybe I see A really good investment opportunity. And I want to go trade some Solana or a futures contract or a perpetual contractor, fill in the blank. You know, I can do that here, but by getting a loan against my Bitcoin. And I know that's just probably narrow minded because I like to trade and that's that what, that is what comes to my brain. But what are some of the other ways that you see or. Right, yeah.

Merlon Egalite (18:08)

So I think there's still a difference between the classic Defi user and classic Coinbase user. In Defi we used to. Okay, it's mostly about the speculation, it's mostly about leveraging. If you draw a loan, it's because you will deposit that liquidity elsewhere to earn better yield or something like that. In general, with Coinbase we are tapping into a much broader number of people. They have literally 100 millions of users. So of course in those users there's just normal people that are not trading meme coins every day or not using Defi. But they may have Bitcoin because they only know about Bitcoin and Ethereum and they don't want to sell them. They're kind of bullish. And I think what Coinbase did is they can abstract the fact of getting a loan in USDC and unwrapping it off, ramping it to USD. And so if you have the Coinbase card or like, yeah, if you have the Coinbase card, you can just basically spend those USD at your, at the grocery or you maybe can pay parts of your car or something like that, which is something that I think is not there yet in the Defi space. Okay, I've learned of usdc, but then I need to proceed to the off ramping myself, etc. Which is kind of cumbersome here. It's all abstracted. So I do think we'll see real use case in the real world thanks to that kind of, of, of product.

Brendan Veeman (20:06)

And so when it comes to these loans, and maybe you can help me understand this, is it more so tied to the USD amount or the BTC amount? Because you know what, if someone takes out a loan, let's just say $1,000, they take out a loan of $1,000, they go, they spend that at the grocery store, they spend half that, they spend half that at the grocery store. Now they have $500 left in the loan, but the BTC that they are borrowing against doubles in price. Does that mean that everything's paid off and they're good to go?

Bryce Paul (20:40)

How does that work?

Merlon Egalite (20:43)

That would be great actually. This Coinbase could create that kind of feature. Basically repaying the loan thanks to the collateral. You just need to, to swap the collateral for the loan asset and repay the debt.

Bryce Paul (21:00)

I think Alchemyx kind of started that whole thing back two or three years ago, self repaying D5 loans. But I don't think they.

Merlon Egalite (21:12)

Next few weeks or months you'll be, I mean on the interface you'll be able to do that, but Coinbase could clearly build that thing. So it's just a matter of developing this. And I do think they will iterate on the product and on the Bitcoin backlog thing. And this is totally something that they could integrate.

Brendan Veeman (21:39)

Wow.

Bryce Paul (21:41)

Yeah. And it's hopeful thinking hopefully eventually we go from 1% penetration of the Coinbase users to 10% to eventually 100% and everybody could use it. What are the numbers you guys are anticipating just in terms of maybe adoption here for this program? And then maybe you could contextualize that in terms of your total addressable market for, for all of us.

Merlon Egalite (22:06)

Right. So right now MOFO is 6 billion of total deposits. So we, we've seen one of the largest growth in the defi space during the bear market and, and now we are entering six biggest DeFi protocols. So that was a really huge growth. And this type of integration will contribute, I guess, to making even bigger. For this specific integration, we are thinking about maybe 30, 60 mil for the first month if they do the rollout to 10% of users, let's say. And once it's 100%, maybe 100, 200 mil over the next three months, over a year, hard to say, maybe 1 billion, I wouldn't be surprised if that. But at the same time market condition can, I don't know if we enter a bear market and every users get liquidated or whatever can drastically change the, the estimation.

Bryce Paul (23:20)

So I, yeah, please don't, don't jinx it. We don't want to see a lot of liquidation.

Merlon Egalite (23:27)

Maybe it will be just like a 100k at the end of the year and I will release send to that podcast and what I. Oh, what I said.

Bryce Paul (23:35)

No, I, I love it. It's, it's bold, it's ambitious and it's also kind of moving, you know, it's, it's not moving too fast where you're going to break things that have, you know, tremendous amounts of value. You're doing it in a very measured pace, which I think is the right way to do it. And I think from my vantage point, there's going to Be other trad fi companies that look at what you're doing with Coinbase and they're going to say, hold on, I want to do that too. Whether you're Robinhood, whether you're, you know, Revolut, whether you are any other these other sort of neo banks or exchanges and even the big companies that are going to be coming on like Charles Schwab and whatever, who are going to have lots of spot Bitcoin and have clients that have it. I mean, I think that this is just kind of the tip of the iceberg.

Merlon Egalite (24:21)

Yeah, yeah, totally. I think you've all seen the acquisition from, sorry, Stripe Acquiring. I think it was bridge for 1.1 billion or something like that. Same thing as I was saying fintech, I've understood that using blockchain will drastically reduce their cost. They have the distribution and the user experience, but blockchain is bringing the efficiency, the transparency. It is just the beginning. I'm pretty sure that Stripe will show new stuff and the fintech that you mentioned, Robinhood and Revolut, especially Robinhood, has been quite close to crypto, et cetera. So I'm pretty sure that we'll try to do those kind of ever earned products, ever bought products like Coinbase, hopefully on Morpho. But I'd be glad anyway if they do stuff on chain and I'm pretty sure they will.

Brendan Veeman (25:38)

There's so much to look forward to. I mean, it's crazy. If we were to have the same conversation. I feel like I say this a lot, but if we were to have the same conversation even like a year ago, two years ago, last cycle, we would just be foaming at the mouth with how cool this stuff is in the future. Can you see maybe loans on other cryptocurrencies and maybe even more broad than that, like could we see loans not only on other cryptocurrencies but maybe tokenized assets as well?

Merlon Egalite (26:10)

Right. You mean for the Coinbase product specifically or in general?

Brendan Veeman (26:16)

I think in general, whether it's Coinbase or another provider.

Merlon Egalite (26:20)

Yeah, I think Coinbase. Let's start with Coinbase. I think they want to expand the number of assets that could be the collateral. I mean they have that CBE asset, so it could make sense, a lot of sense to also allow eth holder to wrap their eth into CBE and to be able to draw a loan against that. Yeah. For over asset on Coinbase, I don't know. That's a good question. For over DeFi. I mean FinTech DeFi integration. I'm pretty sure we'll see some tokenized thing happening. I think right now it's a bit too early in the sense. I don't think there's a PMF right now on the hidden word asset and tokenized assets because rates in defi are super high. So it just does not make sense to use those assets right now. But in a bear market where defi rates are much lower, it makes a lot of sense to be able to access Hillwood assets TBL's yield because it would be higher than what what you can find in defi. And if you don't want to quit the ecosystem and still be able to use open infrastructure on chain, then your only solution will be to to take position of those assets. We have a few examples already on market that have been created with a hill world asset as collateral and stablecoin as an asset. Even like permission market. Because on mofo you can create fully permission market so that you can be compliant to any regulation. So if you are fintech you can create. Oh, I want to gate the boring side. I just want to have my bowers being able to borrow on that market, but I allow any lenders to lend to my borrowers. That's totally doable on wofo and this way you can still be compliant and at the same time tap into the network effect of the morpho protocol.

Brendan Veeman (28:49)

Wow. So in the future you're telling me I could borrow against my xrp? That's what I'm hearing.

Merlon Egalite (28:55)

Yeah. I guess you'll be able the synthetic version. I guess you could do it actually.

Brendan Veeman (29:03)

Awesome. Well, hey, all jokes aside, when we're looking at these bitcoin loans, what kind of interest rate or borrowing rate can we look at for them?

Merlon Egalite (29:13)

Right. So I think last time I checked 6%, so it's not that big. Given the market conditions where everyone is leveraging a lot on their ETH and looping on eth, usdc, et cetera. And I think this is the best rate that you can get on base the chain where morpho is deployed for the coinbase integration. So yeah, it's quite cheap actually.

Brendan Veeman (29:46)

Yeah, no, I mean that makes sense.

Bryce Paul (29:51)

I was going to say, I only got a couple questions left, but I'm thinking how does the morpho token play a role in the ecosystem here?

Merlon Egalite (29:59)

Right, That's a good question. Currently with the morpho token we are exploring grants to. So at the protocol level, the governance has basically no rights. And this is by design. We think that open financial infrastructures that really scale should be built as should be Immutable should be governance minimized even though perhaps even no governance at all. It should be trustless, et cetera. So at the morpho practical level the governance can on the whitelist new interest rate model that can be used on a market new collateral factor and turn on the fee switch. Turning the fee switch is one of the most important thing you can do actually as a token holder similar to what you can do on Uniswap and basically after deciding on where to send that fee. So that's the biggest power but also allocating the treasury of mofo tokens and as I say that we were exploring grants and we want to attract builders but build products and projects that make sense. So we are starting with small grants and not giving away millions right now. And I'm curious what will come from that first grant?

Bryce Paul (31:41)

Yeah and no we we really really are excited to see as well what comes from these grants and how we can get our hands on these products. And Merlon, we we greatly appreciate you joining us today on the Crypto 101 podcast. Before we let you go, a couple closing questions but we just want to know where do you see defy going in the immediate Future here with 2025 kind of you're on the cutting edge and a lot of us listening at home. We want to know kind of what you're seeing as what's directly on the horizon for this year that you think is most innovative.

Merlon Egalite (32:16)

Right. So we've talked about fintechs a lot during this podcast. I think by the end of this year we'll have many, not many but a few more fintech that have integrated defi protocols as a backend and we are seeing this inflow of users coming from the tri fi world coming on chain not because they have set up a wallet or et cetera but because they had already access to a fintech and now they can one click and use a smart wallet or whatever and own tokens own positions on defi protocols. So I think this is one thing thing also I think with all that AI frenzy etc we'll see a lot of scams and things like that like in any bull markets but at the end of the day I do think that AI will kind of improve the ux. Let's take bridging tokens across multi chains. This can be super annoying for users but if you can infer the intent and then use, I don't know, intent based protocol and the AI is doing this for you, maybe all that complexity can be abstracted away and within the Wallet. If the AI system is integrated within the wallet, then the user is just inputting, hey, I want to send to that address. And it's sending to that address but on the correct chain for instance, and doing all the, using the correct bridge, all those kind of things. I think it will take time. So it's not for the next six months, but maybe one year we'll see a drastic improvement on the UX side. Also portfolio management, all those kind of things will be automated so that people don't need to check every day what they should do and where to find the best rate. So I think this is another thing. And plus with the regulation that are kind of being more clearer on the whole space, I think we'll also see more institutional players coming, not just fintechs and centralized exchange. We'll see that and them playing around and doing stuff on chain as well. But we'll see.

Bryce Paul (34:56)

Hey, that's a great synopsis. The intent based bridging and intent based protocols I think are going to be huge and sort of like the decentralized finance with a little bit of overlay of the artificial intelligence stuff where you could kind of interact and talk to your wallet and talk to these blockchain networks and say, hey, I've got Jaido Soul, where's the best place to get rates on it today? Or I've got X, Y and Z token, you know, what pools can I lend to? So you have your LLM or your chat GPT version of your wallet, essentially navigating and being kind of like your little crypto analyst and telling you where you, you know, can deploy and you know, not necessarily as an investment advisor, although I'm sure that those conversations will come up like if he's telling you where to put your money and then he's doing it for you and it's a robot, then it needs to be registered as a robo advisor or something. So we'll see.

Merlon Egalite (35:51)

Yeah, we'll see.

Bryce Paul (35:52)

Yeah, well, there's gonna be lots of, lots of fun stuff to duke out. But at least, at least it seems like the, the tide has shifted. Positive for in, in terms of regulation, for certainly the folks over in America. And we'll see how everything shakes out in the EU and abroad. But yeah, we're, we're optimistic.

Merlon Egalite (36:10)

We'll see what happens in the. You.

Bryce Paul (36:14)

No, hey, we're, we're excited. Merlon, where can people find out more about you and morpho any Twitter X handles or websites? We could put in the show notes?

Merlon Egalite (36:24)

So my Twitter account is Merlin Egerite M E R L E N capital letter E G A L I T E so on Twitter and if you want to know more About MorphoLabs and Mofo in general, the Twitter account is Morpho Labs. So capital letter on MoFo and labs, also capital letter. So that's it.

Bryce Paul (36:53)

Well, hey, we're excited about what you guys are building. We look forward to speaking with you again soon. And thank you for building the future of finance, making it a public good, and keeping us on the right track and on the right side of history here. So we'll, we'll see you soon.

Merlon Egalite (37:08)

Yeah. Thank you so much, Bruce and Brendan. Bye bye.

Bryce Paul (37:11)

Awesome. Take care. Everybody at home watching. Hope you enjoyed. That was Morpho Labs. We'll talk to you guys next week, same time, same place. Some more great guests coming your way.

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