The Ethereum Foundation deployed 3,400 ETH tokens into Morpho in a move that seemed straightforward to some but left others wondering why Aave, the largest Ethereum DeFi protocol negvenever got the nod. 

In a thread posted on X today, March 18, 2025, the Ethereum Foundation announced that they transferred roughly $7.6 million worth of ETH into Morpho’s yield-bearing vaults, with 1,000 ETH specifically allocated to Morpho Vaults V2, the protocol’s latest architecture built around contracts that cannot be upgraded or interfered with by any administrator once deployed.

The move is not an isolated event either. In October 2025, the Foundation had already committed 2,400 ETH and approximately $6 million in stablecoins to Morpho, claiming it was part of a bigger strategy to move away from periodically selling ETH to fund their operations. 

The criteria for the deployment

In June 2025, the foundation, through Hsiao-Wei Wang, published a treasury policy to establish a framework it called “Defipunk,” which is a set of requirements that all future on-chain deployments must satisfy before the foundation can deploy into them. 

Some of the requirements include permissionless access, self-custody, open-source licensing, privacy, open development processes, and what the document describes as “maximally trustless core logic.”

The policy was also explicit about licensing, stating that contracts must use a free/libre open-source license (either copyleft, such as AGPL, or permissive, like MIT/Apache). However, source-available licenses like the Business Source License (or BSL) specifically do not qualify. 

Luckily, Morpho Vaults V2 and Morpho Blue V1 both operate under GPL 2.0. 

For immutability, the policy stated that the Foundation would avoid “admin keys with broad powers” and instead favor protocols where “fundamental logic of the protocol is non-upgradeable or governed by a highly-decentralized, time-locked and transparent process.” 

Morpho also clears this requirement as its V2’s core contracts are fully immutable once deployed, with no chances for administrative override of any kind.

The policy also went ahead to name specific patterns in the current DeFi space that it would not support. 

Apparently, the policy would not accept “backdoor shutdown mechanisms or funds extraction functions, excessive reliance on multisigs or MPC, pervasive use of whitelists, centralized and surveilled UIs.” 

It also stated that these patterns “leave both DeFi markets and participants exposed to systemic vulnerabilities.”

Why did the Ethereum Foundation not choose Aave?

The Ethereum Foundation did not mention Aave anywhere in its post today or in the June 2025 policy document. However, to the skeptic, it’s hard not to read terminologies about admin keys, backdoor extraction functions, and governance transparency failures without drawing parallels to the crisis that has rocked Aave publicly since December 2025.

Apparently, swap revenue from Aave’s CoW Swap integration was found in a wallet controlled by Aave Labs (instead of the DAO treasury). Marc Zeller, the founder of the Aave Chan Initiative and its most influential governance delegate, put the figure at around $51 million in unapproved fees after publishing an audit of Aave Labs’ historical funding on February 25. 

BGD Labs, the firm responsible for building and maintaining Aave V3, also announced on February 20 that it would not renew its contract after April 1 due to centralization concerns and Aave Labs’ apparent attacks on V3 to promote V4.

The governance crisis reached its climax on March 1, when the “Aave Will Win” funding proposal (requesting up to $42.5 million in stablecoins and 75,000 AAVE tokens) passed a Temp Check with a narrow 52.58% approval. 

Zeller immediately challenged the result, alleging that 233,000 votes from Aave Labs-linked clusters (including 111,000 tokens delegated by co-founder Stani Kulechov) decided the outcome, and that removing those votes would have revealed a clear rejection. 

Two days later, the Aave Chan Initiative announced it was leaving the project entirely. 

What does this mean for Morpho?

Morpho is now the only DeFi protocol that the Ethereum Foundation has invested in twice under its current treasury strategy. With a total value locked (TVL) of $5.8 billion, the endorsement comes at a period when Morpho is already starting to build institutional momentum. 

In less than eight months, Coinbase has surpassed $1 billion in Bitcoin-backed loan originations through the protocol. Additionally, Apollo Global Management also agreed to buy up to 90 million MORPHO tokens over four years through its partnership with the Morpho Association.

Nonetheless, the Ethereum Foundation’s policy simply highlights that aside from financial gain, the deployments themselves signal the kind of technical approaches and governance models that the foundation considers sustainable.

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