What happens when a protocol handling billions meets a network measured in millions?
The question matters because Etherlink, the Tezos Layer 2 blockchain, now hosts one of the fastest-growing lending protocols in decentralized finance. On October 28, 2025, Oku, a non-custodial aggregator developed by GFX Labs, integrated Morpho Protocol on Etherlink. This deployment gives Tezos users access to lending and borrowing capabilities through a platform that competes directly with Aave’s 66.7% market share in DeFi lending.
Morpho Protocol operates differently from traditional pool-based lending systems. Where platforms like Aave aggregate all lenders and borrowers into shared pools, Morpho matches lenders directly with borrowers when possible, then falls back to pool-based lending only when needed. This peer-to-peer matching reduces the spread between what lenders earn and what borrowers pay. The protocol surpassed $10 billion in deposits in August 2025, with $6.7 billion in TVL and $3.5 billion in active loans across Ethereum, Arbitrum, and other chains.
The integration arrives as DeFi lending reaches historic highs. In June 2025, the sector hit $55.7 billion in TVL, surpassing peaks from 2021, 2022, and 2024. Morpho contributed significantly to this growth, with its TVL increasing 38% since January 2025.
How does Morpho lending work for users unfamiliar with peer-to-peer protocols?
Traditional lending platforms work like banks holding deposits in a vault. Everyone puts money in the same place, and borrowers take from that shared pool. Interest rates adjust based on how much of the pool gets borrowed. When more people borrow, rates rise to attract more depositors. When fewer people borrow, rates fall.
Morpho changes this model. Think of it as a marketplace that tries to connect individual lenders directly with individual borrowers before using the pool method. If you want to lend 1,000 USDC and someone wants to borrow exactly that amount at similar terms, Morpho connects you directly. This direct connection means better rates for both parties because the protocol eliminates the middleman spread that traditional pools create.
When no direct match exists, Morpho uses the pool system as a backup. This hybrid approach gives users the liquidity guarantees of pool-based systems while capturing the efficiency gains of peer-to-peer matching when possible. The protocol handles all the matching logic automatically through smart contracts, so users simply deposit or borrow as they would on any other platform.
Collateral requirements remain consistent with DeFi standards. Borrowers must deposit assets worth 125% to 200% of their loan value, depending on the specific market and asset pair. If the value of their collateral drops below a threshold, the protocol automatically liquidates enough collateral to repay the loan and protect lenders.
Why did Oku and MEV Capital choose Etherlink for this deployment?
Etherlink offers transaction confirmations in under 500 milliseconds with fees that typically cost around $0.001 per transaction. The Layer 2 network operates as an EVM-compatible blockchain powered by Tezos Smart Rollups technology. Unlike most Layer 2 solutions that build separate governance structures, Etherlink inherits Tezos Layer 1’s security model and on-chain governance system directly.
The network’s performance characteristics attracted multiple DeFi protocols throughout 2025. The Calypso upgrade in March 2025 delivered up to 30x faster smart contract storage speeds and reduced bridging times from 15 days to under one minute. These improvements supported rapid ecosystem growth.
Etherlink’s TVL trajectory tells the growth story. The network held $1.4 million when it exited beta in February 2025. By April, the Apple Farm incentive program pushed TVL above $40 million. The figure reached $47.7 million by August 2025, representing a 3,300% increase in six months.
Dan Zajac, Business Development Lead at Oku, said in a statement that Morpho on Etherlink represents a turning point for lending on the network.
“Users can now control their assets or borrow at competitive rates, all in one place. It’s simple, efficient, and accessible.”
The platform’s architecture matters for lending protocols. Smart contract operations that require frequent state updates, such as interest rate calculations and collateral checks, benefit from faster storage access. Morpho’s lending markets perform these operations constantly as loans accrue interest and collateral values fluctuate. The 30x improvement in storage speed directly impacts the efficiency of these core functions.
What role does MEV Capital play in this ecosystem?
MEV Capital operates as a digital asset management firm focused on DeFi strategies. Founded in 2021 by Laurent Bourquin and Gytis Trilikauskis, the firm provides institutional-grade risk management for on-chain lending and yield generation. The company runs strategies primarily exposed to stablecoins and serves crypto-native entities, high-net-worth individuals, and institutional investors.
Bourquin spent several years at Société Générale Corporate and Investment Banking before co-founding MEV Capital. The firm built its reputation through sophisticated hedging strategies, including options-based approaches to prevent impermanent loss for Uniswap v3 liquidity providers.
The Etherlink vault represents MEV Capital’s first deployment on the Tezos ecosystem. “This vault marks MEV Capital’s strategic entry into the Tezos ecosystem, where Etherlink’s performance characteristics enable the institutional lending infrastructure we’ve pioneered on other chains,” said Laurent Bourquin, CEO at MEV Capital.
Vault curation in Morpho’s system means selecting which assets can be used as collateral, setting loan-to-value ratios, and monitoring risk continuously. Curators earn fees from vault activity while taking responsibility for the safety of depositor funds. MEV Capital’s role involves analyzing market conditions, adjusting parameters as needed, and ensuring the vault maintains appropriate risk levels.
The firm manages the vault’s exposure to three yield-bearing tokens from Midas: mMEV, mBASIS, and mTBILL. These tokens represent different strategies with varying risk profiles and yield potential.
What are Midas tokens and how do they generate yield?
Midas operates as a tokenization platform that converts financial strategies into ERC-20 tokens called Liquid Yield Tokens. Each token tracks the performance of a specific underlying strategy, with the token’s value fluctuating based on the strategy’s returns rather than maintaining a $1 peg like traditional stablecoins.
The three tokens in MEV Capital’s vault serve different purposes. mTBILL tracks short-term U.S. Treasury bills and currently yields around 4.06% APY. The token provides exposure to government-backed securities through a structure that holds assets in a bankruptcy-remote Special Purpose Vehicle. BlackRock’s BUIDL fund serves as the underlying collateral.
mBASIS implements a basis trade strategy, also called a carry trade. This approach capitalizes on price differences between spot and futures markets for Bitcoin, Ethereum, and select altcoins. When futures prices exceed spot prices, the strategy captures the spread. The token yielded between 20% and 40% during favorable market conditions as of October 2024, though returns vary with market dynamics.
mMEV represents market-neutral DeFi yield strategies managed by MEV Capital itself. The token reflects the firm’s proprietary approaches to capturing value from various DeFi protocols. Current yields reach 12.01% APY plus additional rewards, making it the highest-yielding option among the three tokens in the vault.
All three tokens received regulatory approval in Liechtenstein and carry passporting rights across Germany and Europe. Midas removed the $100,000 minimum investment requirement in October 2024, making the tokens accessible to retail investors across Europe. The platform reached $100 million in TVL by May 2025.
The vault structure enables users to deposit USDC and receive interest from lending it against these three yield-bearing assets as collateral. Borrowers can lock up their Midas tokens and borrow USDC at competitive rates, maintaining exposure to the token yields while accessing liquid capital.
How does Oku fit into this lending infrastructure?
Oku serves as the front-end interface connecting users to both Morpho’s lending markets and Uniswap v3’s trading pools. Developed by GFX Labs, the platform received a $1.6 million grant from the Uniswap Foundation in 2022 to build an interface that brings centralized exchange features to decentralized protocols.
The platform operates across 35+ chains with zero frontend fees. Users can execute swaps through 12 different routing systems and bridge assets through 14 bridge protocols, all from a single interface. Oku’s routing engine scans available liquidity sources to find optimal prices for each transaction.
For the Morpho integration specifically, Oku provides live market analytics, real-time interest rate tracking, and streamlined collateral management tools. Users can monitor their lending positions, track accumulated interest, and adjust their collateral ratios without switching between multiple platforms.
The platform launched on Etherlink in June 2025, bringing Uniswap v3 functionality to the Tezos Layer 2 network. The Morpho deployment extends Oku’s capabilities beyond trading into lending and borrowing.
Anthony Hayot, Head of DeFi Adoption at Nomadic Labs, connected the integration to broader ecosystem goals. “The deployment of Morpho on Etherlink marks a major milestone for the Tezos DeFi ecosystem. By combining Etherlink’s performance with Morpho’s leading franchise, we’re enabling a new generation of efficient, transparent, and user-centric lending markets, paving the way for Real-World Asset composability,” Hayot said.
“We’re very proud to kick off this new integration with a Tier-1 curator like MEV Capital, which highlights the growing maturity and sophistication of the Tezos DeFi ecosystem.”
What does this mean for the competitive DeFi landscape?
The integration positions Etherlink as a viable alternative for users seeking lower transaction costs without sacrificing security or decentralization. Morpho’s deployment across multiple chains demonstrates the protocol’s strategy of meeting users where they are rather than forcing them onto a single network.
DeFi lending’s total addressable market continues expanding. The sector holds 35% of all DeFi TVL, with 526 active lending protocols and at least 170 maintaining over $1 million in TVL as of June 2025. Competition remains intense, with Aave maintaining market leadership while Morpho, Compound, and others fight for share.
Etherlink’s growth trajectory differs from other Layer 2 networks primarily in its timing and underlying technology. While networks like Arbitrum and Optimism built large ecosystems before Ethereum’s Layer 2 scaling became crowded, Etherlink enters a market where dozens of Layer 2 solutions compete for users and liquidity.
The network’s connection to Tezos provides both advantages and constraints. Tezos offers a proven on-chain governance system and energy-efficient consensus mechanism that Etherlink inherits. However, the Tezos ecosystem remains smaller than Ethereum’s in terms of developer activity, tooling maturity, and user base.
Real-world asset integration represents a potential differentiator. The combination of Morpho’s lending infrastructure, Midas’s tokenized products, and Etherlink’s performance characteristics creates a stack optimized for regulatory-compliant, composable yield products. “Products like mMEV and mRE7YIELD finally make advanced yield farming strategies accessible to institutional investors,” according to a statement from Nomadic Labs. “We view them as one important step toward bringing wholesale finance fully on-chain.”
What challenges could limit adoption?
Network effects favor established platforms. Aave’s $26.09 billion TVL and years of operation give it advantages in brand recognition, audited codebase, and community trust. Morpho’s $6.7 billion TVL, while substantial, represents only about one-fourth of Aave’s size. Etherlink’s $47.7 million TVL sits several orders of magnitude below these figures.
Liquidity fragmentation poses real problems for DeFi users. When capital spreads across dozens of chains and hundreds of protocols, each individual market becomes thinner. Thinner markets mean wider spreads between bid and ask prices, making trades more expensive. They also mean higher slippage on large transactions, as moving meaningful amounts of capital impacts prices more dramatically in smaller markets.
The vault curated by MEV Capital starts with three specific collateral assets. This limited selection contrasts with larger lending platforms that support dozens of assets and hundreds of markets. Users holding other yield-bearing tokens or wanting to borrow different assets must look elsewhere. Market depth for USDC lending against Midas tokens will depend entirely on how much capital MEV Capital attracts to the vault and how many borrowers want this specific combination of assets.
Smart contract risk remains constant across all DeFi platforms. Morpho has undergone over 25 audits from firms including OpenZeppelin, Spearbit, and Cantina. However, each new deployment creates new potential attack surfaces, particularly when integrating with other protocols and bridging across chains. The February 2025 launch of Etherlink means less battle-testing compared to networks that have operated for years.
Regulatory uncertainty affects real-world asset tokenization projects particularly acutely. While Midas secured approvals in Liechtenstein with passporting rights across Europe, regulations continue evolving. Changes in regulatory frameworks could impact the tokens’ availability, structure, or yield generation methods. The tokens remain unavailable to U.S. investors, cutting off access to one of the largest markets for DeFi products.
How does this integration change the calculus for Tezos developers?
The deployment demonstrates that Etherlink can support complex DeFi protocols without modification. Morpho’s codebase, originally written for Ethereum, runs on Etherlink without changes because of the network’s EVM compatibility. This compatibility matters for developers evaluating which Layer 2 networks to target.
Building on Etherlink means accessing the Tezos community while using familiar Ethereum tools. Developers can use Hardhat, Foundry, MetaMask, and other standard EVM tooling. At the same time, they gain access to Tezos’s on-chain governance system and the network’s established user base.
‘The combination of Oku, Morpho, and Midas creates a template for other projects. A DeFi protocol can deploy on Etherlink, integrate with existing interfaces like Oku, and offer products that combine on-chain and real-world yield sources. This stack reduces the infrastructure burden for new projects while giving them access to established liquidity and user bases.
Etherlink’s Tezlink runtime, expected to launch alongside the EVM environment, will enable developers to build using Tezos-native languages like Michelson, SmartPy, and Ligo while still connecting to Etherlink’s DeFi protocols. This dual-runtime approach could attract developers who prefer Tezos’s tooling but need access to EVM liquidity.
What comes next for users and the broader ecosystem?
Users can access the integration immediately by visiting oku.trade and connecting their wallets. The platform supports standard Ethereum wallets like MetaMask, making the onboarding process familiar to anyone who has used DeFi applications before.
The initial vault provides a foundation for expansion. MEV Capital’s success or failure curating this first market will influence whether other vault curators choose to deploy on Etherlink. More curators mean more collateral options, which means more reasons for users to move liquidity to the network.
Competition will intensify as other Layer 2 networks court similar integrations. Every major DeFi protocol now faces decisions about which chains to support, and liquidity remains fragmented across dozens of networks. Etherlink competes not just with other Tezos-related projects but with Arbitrum, Optimism, Base, zkSync, and many others for developer attention and user capital.
The success of this integration could accelerate Etherlink’s growth beyond the incentive programs that initially drove adoption. If users find genuine value in the combination of fast transactions, low fees, and access to institutional-grade yield products, organic growth could sustain momentum after rewards programs end. The network’s TVL growth from $1.4 million to $47.7 million in six months suggests demand exists, but sustainability remains unproven.
Final thoughts and analysis
The Oku-Morpho integration on Etherlink represents more than a technical deployment. It tests whether a Layer 2 network can build meaningful DeFi infrastructure fast enough to compete with established players who have years of head start.
Three factors will determine success. First, whether MEV Capital can attract sufficient capital to make the lending markets liquid enough for practical use. Second, whether Etherlink can maintain its growth trajectory after incentive programs wind down. Third, whether users perceive enough value in the combination of low fees, fast transactions, and yield opportunities to justify the friction of moving capital to a newer, less proven network.
The integration’s timing matters. DeFi lending reached historic highs in 2025, with the sector hitting $55.7 billion in TVL. This growth indicates rising institutional and retail interest in on-chain lending products. Etherlink enters this expanding market with infrastructure advantages that could attract users if the network executes well.
Morpho’s multi-chain strategy validates the approach of meeting users across multiple networks rather than forcing them onto a single chain. The protocol’s $10 billion in deposits across various chains proves that users will adopt lending platforms regardless of the underlying network, as long as the economics work and the security seems sound.
The real-world asset component adds a dimension that pure DeFi protocols lack. By enabling lending against tokenized Treasury bills, basis trade strategies, and institutional yield products, the integration bridges traditional and decentralized finance in ways that could appeal to a broader user base than typical DeFi offerings.
Whether this integration marks the beginning of sustainable growth for Tezos DeFi or remains a promising experiment in an oversaturated Layer 2 landscape depends on execution over the coming months. The infrastructure exists. The protocols work. The challenge lies in attracting and retaining enough users and capital to reach critical mass in an environment where countless alternatives compete for attention.
For now, Tezos has its shot at DeFi relevance through Etherlink. The next chapter depends on whether users choose speed and low fees over established networks with deeper liquidity and longer track records. Markets will decide, as they always do in decentralized finance.
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