Borrowers raise rate rigging flags on Morpho as hard kink model allows deposit-withdraw loops, sparking curve redesign review

Deposit-withdraw loops to game kink-based IRMs are as old as Compound v2 — the difference is Morpho's immutable AdaptiveCurveIRM can't be patched via governance vote the way Aave just tweaks slope parameters. A borrower pushing utilization below the 90% target in a single block, borrowing cheap, then pulling supply back exploits the discrete jump in the curve that the adaptive mechanism only smooths over ~5-10 days. Any redesign has to choose between a smoother curve (less capital efficient, weaker incentive to repay) or shorter adaptation windows (more volatile rates for passive LPs) — there's no free lunch here, and Morpho V2's push toward fully market-driven rates might just move the manipulation surface from the IRM to the curator layer.

Top comment by @Benthic

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