“The problem we are trying to solve is less about replacing competitors and more about establishing ourselves as the credit infrastructure layer that banks, asset managers, and fintechs build on,” Morpho co-founder Merlin Egalite told Cointelegraph after announcing his company’s $175 million raise on Tuesday.
That’s not the kind of statement you typically hear from DeFi founders. The playbook for decentralized lending protocols has always been about disintermediation, cutting out the banks, letting users lend directly to each other without permission from anyone. Morpho started there too. But $175 million later, the company is pivoting toward something that looks a lot more like enterprise software for traditional finance.
The round was led by Paradigm, a16z crypto, and Ribbit Capital. Egalite called it “the largest raise in DeFi history,” though that claim depends on how you define the category. What’s harder to argue with: Morpho has $6.72 billion in total value locked and $3.47 billion in active loans, according to DeFiLlama. Risk management platform Sentora described those figures as evidence of “significant liquidity depth” in a Friday newsletter.
Coinbase’s $2.17 Billion Tells the Real Story
The clearest signal that Morpho has moved beyond retail DeFi comes from Coinbase. The exchange has used Morpho smart contracts to originate more than $2.17 billion in corporate USDC loans. That’s not users on a web app clicking “supply” and “borrow.” That’s a publicly traded company using Morpho as plumbing for its own credit products.
Sentora argued the trend extends beyond crypto-native firms. Exchanges, custodians, and asset managers are actively evaluating blockchain-based lending systems, the firm said, while protocols compete to become the underlying infrastructure for business-to-business integrations.
Spark CEO Sam MacPherson framed it in terms of stablecoin adoption. As stablecoins scale, “credit becomes one of the most important pieces of infrastructure in the stack,” he told Cointelegraph. The logic: if Tether and USDC are going to power global payments, someone needs to build the lending rails that sit on top of them. Banks aren’t going to build those rails from scratch. They’ll buy or rent them.
This fits a pattern we’ve been tracking. Galaxy Digital backed a $20 million bet on automating credit markets earlier this year, funding Fence to replace spreadsheets and PDFs with blockchain-powered infrastructure in the $6 trillion asset-backed securities market. PayPal expanded its PYUSD stablecoin to 70 global markets in March, further proof that serious financial players are building on stablecoin rails.
Morpho wants to be what Amazon Web Services became for internet companies: the infrastructure layer that everyone else builds on top of. Egalite said the company intends to measure the success of this raise over the next 12 to 18 months by expanding integrations with banks, asset managers, and large platforms, attracting more institutional capital, and rolling out features from traditional credit markets.
The Math Behind Late-Stage Concentration
Morpho’s raise also reflects a broader shift in where crypto venture capital is going. According to CryptoRank’s Q1 2026 report, capital allocated to Series C and later-stage crypto funding rounds surged 1,020% year over year and 320% quarter over quarter. That category accounted for 28.4% of venture funding across just nine deals.
Nine deals. Nearly a third of all crypto VC money went to nine companies.
Meanwhile, seed and pre-seed funding fell 38.1% and represented only 5.2% of total capital. Early-stage founders are getting squeezed while established players vacuum up most of the available money.
To put the 1,020% year-over-year surge in context: if late-stage deals received $100 million in Q1 2025, they received over $1.1 billion in Q1 2026. That’s not a modest preference for proven companies. That’s a wholesale abandonment of early bets in favor of doubling down on infrastructure that’s already working.
Egalite said he’s unconcerned about capital concentration. From his seat, it probably looks fine. Morpho is on the receiving end. For the ecosystem overall, the picture is more complicated. Fewer seed deals means fewer experiments, which means the next Morpho might not get funded at all.
The counterargument: maybe the industry doesn’t need more experiments right now. Maybe what it needs is for the winners from the last cycle to actually ship products that institutions can use. Morpho’s TVL has climbed sharply since late 2024, suggesting that scaling existing infrastructure might create more value than launching new protocols.
What Onchain Credit Markets Actually Look Like
For readers unfamiliar with the mechanics, onchain credit markets allow users and institutions to borrow, lend, and deploy capital using blockchain-based assets. In practice, that means a bank could use Morpho’s smart contracts to offer loans denominated in stablecoins, with collateral posted on Ethereum and liquidations handled automatically by code.
The appeal for institutions is threefold. First, transparency: every loan, every collateral position, every interest rate adjustment is visible onchain. Auditors can verify in real time rather than waiting for quarterly reports. Second, automation: smart contracts handle tasks that currently require back-office staff, from margin calls to settlement. Third, composability: credit products built on Morpho can integrate with other DeFi protocols, creating yield strategies that aren’t possible in siloed traditional systems.
The risks are also real. Smart contract bugs can drain collateral. Oracle failures can trigger false liquidations. Regulatory uncertainty means banks using onchain credit systems might face compliance questions they can’t yet answer. Morpho has operated without a major exploit, but that’s not a guarantee for the future. Radiant, another DeFi lending protocol, announced recently that it would wind down after failing to recover from a 2024 hack.
Institutional adoption of onchain credit is still early. Coinbase’s $2.17 billion is impressive, but it’s one company. The “banks, asset managers, and fintechs” that Egalite mentioned are evaluating, not deploying. Sentora’s observation that these players are “actively evaluating blockchain-based lending systems” is encouraging language, but evaluation is not the same as integration.
Morpho has 12 to 18 months to prove that evaluation converts to adoption. That’s the timeline Egalite set. If he’s right, the protocol becomes critical infrastructure for the next generation of financial products. If the institutional pipeline stalls, $175 million buys a lot of runway but doesn’t change the fundamental business model.
The Stablecoin Thesis Underlying Everything
Spark’s MacPherson made the connection explicit: as stablecoins scale, credit infrastructure becomes essential. The reasoning is straightforward. Stablecoins are useful for payments, but payments alone don’t capture most of the value in financial services. Lending does. Credit creation is where banks make their margins.
If stablecoins are going to compete with the dollar for global commerce, they need the same infrastructure the dollar has: credit cards, mortgages, business loans, trade finance. All of that requires lending rails. Morpho is betting it can provide those rails.
The stablecoin market has grown substantially, with USDC and Tether combined now representing hundreds of billions in market cap. Tokenized assets are following a similar trajectory, with BlackRock, Franklin Templeton, and other asset managers putting money market funds and Treasury bills onchain.
Morpho sits at the intersection of both trends. A tokenized Treasury bill can serve as collateral in a Morpho market. A stablecoin can serve as the loan currency. The protocol becomes the middleware connecting these pieces.
Whether that middleware needs to be decentralized is an open question. Banks might prefer permissioned systems they control. The fact that Coinbase chose Morpho suggests at least one major player values the public infrastructure approach, but Coinbase is also crypto-native and comfortable with DeFi in ways that JPMorgan is not.
Morpho’s next year will answer whether the thesis holds. For now, the company has the capital to try.
