Lending

MegaStrategy leverages Morpho — a permissionless lending protocol — to create onchain lending markets for MGST and CV tokens. By integrating with Morpho, MegaStrategy unlocks additional utility for both tokenholders, enabling more sophisticated strategies and greater capital efficiency.

Morpho

Morpho is a decentralized protocol built for overcollateralized lending and borrowing. It stands out by allowing permissionless market creation, each market having:

One collateral asset (ex: MGST or CV)
One loan asset (ex: USDC or MGST)
Liquidation Loan-to-Value (LLTV) threshold
Interest Rate Model (IRM)
Pricing oracle

Crucially, Morpho's code is immutable once deployed – meaning each market's parameters cannot be changed or halted by governance. This design offers higher collateralization factors and improved efficiency without requiring large multi-asset pools like traditional lending platforms (ex: Aave or Compound).

Why Morpho?

Permissionless Market Creation

Anyone can deploy a new market — no external governance approval needed
Each market’s parameters are set at creation

Trustless & Immutable

Morpho’s code is immutable, meaning no upgrades or admin keys can alter existing markets
This ensures the protocol remains transparent and consistent over time

High Capital Efficiency

Isolated markets support higher LLTVs and more targeted risk parameters
By focusing on one collateral-loan pair, Morpho can offer more competitive interest rates

MGST Markets

MGST is the protocol's strategy token with leveraged ETH exposure. Creating an MGST↔USDC market on Morpho benefits tokenholders in several ways:

Unlock Liquidity

MGST holders can deposit their tokens as collateral and borrow stablecoins without selling their leveraged ETH position. This allows them to pursue additional DeFi strategies — while maintaining upside exposure to MGST.

Shorting or Hedging

On the flip side, users can deposit USDC and borrow MGST – effectively shorting the token if they expect near-term price drops or want to hedge an existing position.

CV Markets

Convertible Tokens (CVs) are stable-denominated debt instruments with an embedded option to convert into MGST at a fixed, predictable rate. This fixed-rate conversion effectively secures the underlying redemption value of CVs, allowing them to be used as collateral.

CV↔MGST markets on Morpho unlocks the following for convertible holders:

Delta-Neutral Strategy

CV holders can deposit their tokens as collateral and borrow MGST. By selling the borrowed MGST for stablecoins, a user offsets much of the CV’s exposure to MGST price movements, creating a delta-neutral position. This approach lets convertible holders harness volatility while minimizing direct risk from ETH price swings.

Convertible Leverage

Users can also tap into MGST lending markets to increase their CV exposure. After depositing CV as collateral and borrowing stablecoins, a user can purchase additional CV and re-deposit it — thereby leveraging their position. This approach can be repeated multiple times, magnifying both potential gains and liquidation risks. Users should carefully monitor their health factor and overall market conditions before employing this strategy.

Risks

Liquidation Risk

If collateral drops in value or if a borrower’s debt exceeds the LLTV threshold, positions can be liquidated. Volatile assets like MGST warrant careful management.

Interest Rates & Liquidity

Each market is isolated; if few users supply MGST or CV, interest rates can spike or borrowing capacity may be limited. Low liquidity also increases slippage on liquidations.

Oracle Dependence

Morpho requires a reliable price feed. Malfunctions or extreme market conditions could lead to mispriced collateral.

Smart Contract Risk