Morpho is a decentralized, non-custodial lending protocol designed to optimize the lending and borrowing process on platforms like Aave and Compound. It dynamically matches lenders and borrowers in a peer-to-peer (P2P) manner. This matching mechanism improves capital efficiency, as it eliminates the spread between the interest rates for lenders and borrowers that typically exist in standard lending pools.

Morpho utilizes a proxy scheme to act as an intermediary between users and the underlying lending pools. This means that when a user deposits assets into Morpho, the protocol either matches them directly with a borrower or places the assets in an underlying pool until a match is found. This approach ensures optimal interest rates and maintains liquidity for both lenders and borrowers.

The governance of Morpho is handled by the Morpho DAO, which uses the MORPHO token for decision-making. This token governs various aspects of the protocol, including deploying smart contracts and managing the DAO's treasury.

Morpho also offers a versatile interface, Morpho Blue, which allows users to select markets and risk parameters tailored to their risk preferences. This interface acts as a neutral platform for interacting with Morpho's contracts and provides comprehensive data and analytics to help users make informed decisions.