Governance Innovation of On-Chain Credit Infrastructure: Industry Practices from DAO to Curator Model

Introduction: When DeFi Encounters a "Midlife Crisis"

Since the second half of 2024, a noteworthy phenomenon has emerged in the DeFi lending sector: several leading protocols have begun to adjust their governance structures, shifting from purely DAO governance to a more flexible hybrid model. Behind this change is a collective exploration by the entire industry in response to the waves of institutionalization, regulatory pressure, and efficiency bottlenecks. The MetaMorpho curator system launched by Morpho in 2024, Aave's attempt at an institutional-exclusive market, and Compound's discussions around Treasury all point in the same direction: the traditional "one person, one vote" governance model is revealing its limitations in the face of rapidly changing market demands. This article aims to analyze the strategic adjustments of several major protocols from 2024 to 2025 to answer a core question: How should DeFi lending protocols find a balance between decentralized ideals and commercial efficiency? We will use Gearbox Protocol's Permissionless model launched in March 2025 as a primary case study and conduct a horizontal comparison with the practices of Morpho, Aave, Compound, and others to evaluate the performance differences of various governance models in actual operations.

The "Chronic Illness" of DAO Governance

Over the past year, the on-chain lending market has undergone a profound identity crisis. The narrative from 2020 to 2022 was "permissionless financial democratization," but by 2024, when traditional financial giants like Coinbase and BlackRock began to truly engage in on-chain lending, the entire industry suddenly realized that the challenge was no longer "how to attract retail investors," but rather "how to serve institutional clients without betraying the original ideals of decentralization." This dilemma is most intuitively reflected in the collapse of governance efficiency. Taking Compound as an example, a proposal regarding new collateral types in 2024 took over 8 weeks from discussion to final approval, during which the market window had long since closed. Although Aave has improved somewhat through a fast-track approval process (Snapshot voting), the fundamental issue remains unresolved: when a protocol needs to serve 50 different user groups with varying risk appetites, the DAO's "completeness" logic inevitably leads to "slowness."

Another underestimated challenge is regulatory adaptability. The EU's MiCA regulations and the SEC's enforcement actions have made the entire industry realize that "pure decentralization" is neither a shield against regulation nor conducive to interfacing with traditional financial institutions. Institutional funds require clear accountability, transparent risk control processes, and auditable decision records, which are precisely the weaknesses of traditional DAO governance. Against this backdrop, 2024 saw a wave of "governance model reconstruction." Morpho was the first to launch MetaMorpho, allowing professional teams to create curator pools (Vaults) and manage risk parameters autonomously; Aave initiated the Aave Arc program to provide KYC-exclusive markets for institutional clients; Euler introduced EVC (Ethereum Vault Connector) to achieve more modular risk isolation. The commonality of these attempts is to decentralize the operational decision-making power of specific markets to professional teams while retaining the decentralization of the protocol layer.

A "Species Catalog" of Four Governance Models

Compound: The Conservative Upholder Compound still adheres to complete on-chain governance, requiring a full process of proposals, voting, and time locks for any parameter adjustments. The advantage of this model is high transparency and strong community participation, but the cost is a long decision-making cycle (usually 2-4 weeks), making it difficult to respond quickly to market changes. In 2024, Compound's total market count only increased from 32 to 41, with an expansion speed significantly lagging behind competitors. However, it is fair to say that Compound's positioning is "safety first," and its three-year record of zero bad debts proves the risk control advantages of this model. In an industry that generally pursues speed, Compound resembles an old craftsman who insists on hand-brewing—slow, but reliable in quality.

Morpho: The Radical Delegator Morpho's MetaMorpho system may be the most radical delegation attempt to date. The protocol itself is only responsible for the underlying lending logic and liquidation mechanisms, while the creation of specific markets, asset selection, and risk parameters are entirely determined by curators. This has led to astonishing expansion speed: in 2024, Morpho added over 200 markets, with TVL growing from $800 million to $2.8 billion (a 250% increase). However, the issues are also evident; as of May 2025, Morpho's top 10 curators controlled over 65% of the TVL, and the risk of centralization cannot be ignored. More concerning is that some curators, in pursuit of high yields, have begun to accept illiquid collateral, accumulating potential risks. Morpho is like handing the steering wheel to the co-pilot, with itself only responsible for braking—provided the braking system is sensitive enough.

Aave: The Balancing Act Aave has taken a relatively moderate path: the main pool is still strictly managed by the DAO, but Aave Arc provides customized markets for institutional clients. The benefit of this "dual-track" system is that it retains the basic foundation of decentralization while flexibly serving institutional needs. However, operational complexity has significantly increased, with Aave's development costs rising by 40% year-on-year in 2024, and the growth of the Arc market falling far short of expectations (with TVL accounting for only 8% of the total). A key reason is that institutional clients found that while the KYC entry requirements of Arc met compliance needs, they did not bring significant advantages in interest rates, leading to insufficient attractiveness. Aave resembles a rider trying to ride two horses at once; theoretically feasible, but practically exhausting.

Compound V3: The Repairman's Attempt Compound V3 attempts to make improvements within the traditional DAO framework by introducing a "fast-track proposal" mechanism: for low-risk parameter adjustments (such as minor interest rate tweaks), a simplified process can be followed, reducing approval time from 4 weeks to 1 week. This somewhat alleviates efficiency issues, but fundamentally it still does not escape the DAO framework, and practices in 2024 have proven that its market expansion speed remains limited. A comparison reveals a growing consensus in the industry: pure DAO governance struggles to adapt to the current market pace, but completely abandoning decentralization will trigger new problems. The key is to find the appropriate "delegation boundaries"—which decisions must remain at the DAO level (such as core protocol parameters and economic models), and which can be delegated to professional teams (such as specific market risk management).

Gearbox's "Speed and Passion"

Gearbox's Permissionless model launched in March 2025 can be seen as a variant of Morpho's curator model, but with more constraints. The core logic is: the protocol layer provides standardized lending and leverage infrastructure, curators are responsible for creating specific markets and managing risk parameters, but curators must bear the first loss themselves (through a staking mechanism), and their operations are subject to on-chain transparency constraints. From a data perspective, this model achieved significant results in its early stages. From March to August 2025, Gearbox's TVL grew from $105 million to $329 million, a growth rate of 213%. Notably, the Lido special pool, as the first large-scale application of the Permissionless model, saw its TVL grow from $72 million to $296 million. This growth rate is indeed impressive in the current market environment—by comparison, Aave's overall TVL growth rate during the same period was 45%, Compound's was 31%, and Morpho's was 89%.

However, the comparison of expansion speeds is even more interesting. Gearbox deployed 42 new markets within three months, covering five chains, while it only deployed 41 markets throughout 2024. This acceleration is driven by the decision-making efficiency brought by the curator model: there is no longer a need for each market to go through the DAO proposal process, allowing curators to act quickly based on market opportunities. In contrast, Compound's average launch cycle for each new market in 2024 was 3.2 weeks, Aave's was 2.1 weeks, while Gearbox shortened this cycle to an average of 5 days through the Permissionless model. However, rapid expansion has also raised questions. Gearbox has currently "activated" deployment capabilities on 28 EVM chains but is only operating on 9 chains. This "broad net" strategy certainly reduces operational costs but also means that a large amount of liquidity is dispersed. Taking the Plasma pool as an example, while its TVL reaches $80 million, it is distributed across four different chains, resulting in low single-chain liquidity depth. This is similar to the issues faced by Morpho: excessive market fragmentation may weaken capital efficiency.

Another noteworthy indicator is the quality of curators. The five curators currently collaborating with Gearbox, including Invariant Group, Re7, and Maven11, collectively manage over $1.5 billion in assets, with four ranked among the top 15 DeFi curators. This does reflect a certain level of institutionalization, but compared to Morpho, there is a noticeable gap: Morpho's curator ecosystem includes over 30 professional institutions such as Gauntlet, Steakhouse Financial, and Block Analitica, with total managed assets exceeding $5 billion. The breadth and depth of the curator ecosystem directly determine the model's risk resistance capability. Risk testing is another critical dimension. Gearbox officially emphasized that it achieved zero bad debts during the extreme market fluctuations on October 10, 2024, which is indeed a positive signal. However, it should be noted that the extremity of this test was relatively limited (with ETH dropping 12% in a single day); true stress tests should reference events like the Terra collapse in May 2022 or the Black Swan event on March 12, 2020. In comparison, Aave experienced approximately $5.3 million in bad debts during the March 12 event but covered it through insurance mechanisms and community funds; Compound faced about $8.6 million in liquidation delays at that time, ultimately resulting in no actual losses. Morpho, having launched later, has yet to undergo a true systemic risk test, which is one reason the market remains cautious about its rapid expansion.

The "Desperate Battle" Strategic Transformation

In August 2025, Gearbox DAO decided to completely abandon the traditional DAO governance pool and fully transition to the Permissionless model through proposal GIP-264. This decision sparked intense discussions within the community, as it meant the protocol would completely bid farewell to the early concept of "community co-decision-making for specific markets." From a business logic perspective, this choice is not difficult to understand: the Permissionless pool already accounts for over 70% of the total TVL, and its growth rate far exceeds that of the DAO pool, making the cost-benefit ratio of maintaining two systems clearly unviable. The TVL of the DAO pool only grew from $82 million to $98 million in 2024 (a 19% increase), while the Permissionless pool grew by 180% during the same period. More critically, the operational costs of the DAO pool (including the time costs of governance processes and human resources) are actually higher. This is akin to a company discovering that its traditional business department is not only growing slowly but also continuously consuming resources, ultimately deciding to make a painful cut.

However, the concerns raised by opponents are also valid. First, is a 70% TVL share sufficient to represent "users voting with their feet"? It must be considered that the Permissionless pool has enjoyed preferential resources in marketing and curator relationships. Second, will completely abandoning the DAO pool lead to the protocol losing its narrative foundation of "decentralization"? In the current regulatory environment, this could become a disadvantage. Uniswap has faced scrutiny from the SEC due to overly centralized front-end control, while Compound's pure DAO governance has become a point of defense. Compared to the industry, Gearbox's choice is quite radical. Aave has opted for a dual-track approach, Compound still insists on DAO dominance, and even Morpho has retained DAO governance at the protocol level (though it has fully delegated market-level governance to curators). Gearbox is the first mainstream protocol to fully "bet" on the curator model. This could either become a turning point for the industry or a costly experiment. It is worth noting the design of the migration process. To ensure a smooth transition, Gearbox deployed two new institutional-level curators (Maven11 and KPK) to take over the funds from the original DAO pool. However, there is a subtle issue: are users being "guided" to migrate or "voluntarily" migrating? If support and optimization for the DAO pool gradually cease, users may be passively accepting the new model. This "soft coercion" could pose hidden risks—if issues arise with the new model, the community may feel that their choice has been stripped away.

The "Double-Edged Mirror" of the Curator Economy

The rise of the curator model is essentially an inevitable result of "specialized division of labor" in the DeFi space. However, we must recognize that this model is far from perfect. The bright side is evident: professional teams can provide more refined risk management, faster market responses, and friendlier interfaces for institutional connections. Morpho's data shows that markets managed by its curators have an average capital utilization rate 23% higher than those governed by DAOs. Gearbox claims its curators can complete new market deployments in 5 days, while traditional processes require 3-4 weeks. These efficiency improvements are real, just as professional chefs can indeed create more exquisite dishes than home kitchens.

However, the dark side cannot be ignored. First is the risk of centralization. Whether in Morpho or Gearbox, the top five curators control over 50% of the TVL. If these curators make systemic misjudgments (such as the collapses of 3AC and Celsius in 2022), the entire protocol could suffer severe damage. A more insidious risk is the potential collusion among curators—although each market is theoretically independent, if several major curators adopt similar risk control models, systemic risks could be amplified. Second is the ambiguity of accountability. When bad debts occur, who should bear the responsibility—the curators or the protocol? Morpho's solution is for curators to bear the first loss through staking, but the staking rate is usually only 5-10% of the market size, meaning large bad debts will still transmit to the protocol. Gearbox's mechanism is similar and has yet to undergo a true stress test. In contrast, Aave, while slower, has clear boundaries of responsibility: the protocol bears all risks, covered by an insurance fund.

Third is information asymmetry. Although all operations are on-chain, ordinary users find it challenging to assess the risk exposure of curators in real-time. There have already been cases where curators quietly increased the proportion of risky assets in Morpho until someone exposed it in a forum. Gearbox currently relies on third-party dashboards like Dune for transparency, but this is far less effective than a protocol-native risk monitoring system. Fourth is the lack of exit mechanisms. If users are dissatisfied with a curator's decisions, they can theoretically withdraw funds and switch to another market. However, in practice, withdrawals often require a waiting period (due to liquidity management needs), and switching markets incurs gas fees and potential slippage losses. This "stickiness" can lead curators to lack sufficient external constraints, much like a monopoly without competitive pressure.

The "Inflated" Trap of Multi-Chain Expansion

Both Gearbox and Morpho heavily promote their multi-chain deployment capabilities, but this strategy deserves closer scrutiny. Gearbox claims to have "activated" on 28 EVM chains, but is only actually operating on 9. Morpho operates on 12 chains. In contrast, Aave focuses solely on six mainstream chains, and Compound operates only on the Ethereum mainnet and a few L2s. Which strategy is superior? The logic behind supporting multi-chain is to capture more incremental markets, especially early opportunities in emerging L2s. Gearbox's pools on Plasma and Etherlink indeed filled liquidity gaps early on these chains, achieving TVLs of $80 million and $17 million, respectively. This appears successful from a single-chain perspective, but when viewed at the protocol level, issues become apparent.

First, liquidity fragmentation severely undermines capital efficiency. When the same asset type is dispersed across 10 chains, the depth on any single chain is insufficient to support large borrowings, necessitating higher interest rates to compensate for liquidity risks. Aave's data shows that its average utilization rate for USDC on the Ethereum mainnet is 75%, while on some smaller L2s, pools with the same parameters have utilization rates of only 40%. Second, cross-chain risks are systematically underestimated. The collapse of Multichain in 2024 led to losses exceeding $120 million for multiple protocols, most of which were multi-chain protocols. Each additional chain increases reliance on a cross-chain bridge, which remains the most vulnerable link in the entire crypto space. Although Gearbox claims to use "official bridges," these cannot guarantee absolute safety—Ronin Bridge is a bloody example. Third, there is hidden growth in operational costs. While Gearbox states that "activation" does not equal "operation," each chain requires supporting oracles, liquidation bots, and monitoring systems. More critically, there is technical debt: the compatibility of different EVMs is not 100%, and when contract upgrades are needed, the coordination costs across 28 chains are much higher than across 6 chains.

In contrast, Aave's "selected main chain" strategy may seem conservative, but it offers better capital efficiency and security. Its single-chain TVL on the Ethereum mainnet exceeds $12 billion, far surpassing any multi-chain protocol's single-chain scale, which means better liquidity depth and lower borrowing costs. Compound's strategy is even more extreme: it only operates on Ethereum but maximizes security and stability, resulting in three years of zero bad debts, making it the first choice for institutional funds. Multi-chain expansion is essentially an "efficiency illusion": on the surface, it appears to cover a wide range of markets and chains, but the true moat lies in depth, not breadth. The network effect of DeFi is the liquidity network effect, and dispersion weakens this effect. It's like a chain restaurant that opens 100 mediocre branches; it is more competitive to concentrate resources on 10 high-quality stores.

The "Faustian Bargain" of Institutionalization

The broader context of the governance model innovation is the wave of "institutionalization" in DeFi. However, we need to question: is institutionalization truly the future of DeFi? The logic of supporters is clear: institutional funds are large, stable, and professionally managed, making them essential for scaling DeFi. Data supports this: the proportion of institutional funds in DeFi's total TVL rose from 12% to 29% in 2024, contributing the majority of incremental growth. Gearbox's ability to attract institutional-level curators like Maven11 and KPK, and Morpho's collaboration with top risk control firms like Gauntlet, indeed enhances the professionalism of the entire protocol. However, the concerns of opponents are equally reasonable: isn't the original intention of DeFi to "remove intermediaries"? When we introduce institutional curators, KYC access, and professional risk control teams, how much difference remains from traditional finance? A more realistic risk is that institutionalization may turn DeFi into a "licensed club," systematically excluding small teams and individual users.

A trend worth monitoring is the "oligopolization" of the curator ecosystem. Among Morpho's top 15 curators, 9 also provide risk consulting for protocols like Aave and Compound. What does this mean? It means that the risk decisions of the entire DeFi lending market are effectively controlled by fewer than 20 institutions. If these institutions adopt similar models and assumptions (which they likely will), systemic risks could be greatly amplified. The lesson from the 2008 financial crisis was precisely that "everyone used the same risk control model." Another overlooked issue is the disappearance of regulatory arbitrage. One of the early advantages of DeFi was the flexibility brought by regulatory gray areas, but when protocols actively embrace institutionalization, introduce KYC, and establish clear accountability, they are effectively relinquishing this advantage. The EU's MiCA and the potential U.S. stablecoin legislation both clearly require licensed institutions to comply with traditional financial rules such as capital adequacy and liquidity coverage ratios. If DeFi protocols ultimately must adhere to these rules, will their cost structures approach those of traditional finance, thereby losing their competitive edge?

The more fundamental philosophical question is: what kind of financial system do we want? If the answer is "a more efficient traditional finance," then the institutionalization strategy is fine. But if the answer is "a truly decentralized, censorship-resistant, permissionless financial system," then the current direction is worth reconsidering. The success of Uniswap precisely proves that a minimalist, truly decentralized protocol can also capture a significant market share (with TVL exceeding $4 billion, and completely without curators or governance). This raises the question: do we want a faster horse-drawn carriage or a car? If DeFi merely replicates traditional finance on-chain, what is the point?

No Perfect Answers, Only the Art of Trade-offs

Through the comparative analysis of Gearbox, Morpho, Aave, and Compound, we can draw several conclusions. First, traditional DAO governance indeed has efficiency bottlenecks, but its "slowness" is not necessarily a bad thing. Compound's three-year record of zero bad debts proves that caution and transparency have irreplaceable value in risk management. Fast is not always better, especially when handling other people's funds. Second, the curator model enhances efficiency, but at the cost of centralization risks and ambiguous responsibilities. The rapid expansion of Morpho and Gearbox is impressive, but it has yet to undergo a complete cycle of testing. A key test will be how curators and the protocol share losses when large-scale bad debts first occur, and whether the community accepts this. Third, multi-chain expansion appears attractive but may actually be an efficiency trap. Capital efficiency and liquidity depth are more important than the number of markets; Aave's selective strategy may prove superior in the long run. Fourth, institutionalization is a double-edged sword. It brings professionalism and scale but may also cause DeFi to lose its fundamental advantages. The industry needs to find a balance between embracing institutional funds and maintaining decentralization, rather than blindly pursuing the former.

Finally, Gearbox's complete shift to the Permissionless model is a bold experiment, and its success or failure will profoundly impact the future direction of the entire DeFi lending sector. If successful, we may see more protocols follow suit; if it fails, it will serve as a cautionary tale of "over-centralization." Regardless, this experiment deserves close attention from the entire industry. The future of DeFi will not be the victory of a single model but the coexistence of multiple models in different scenarios. Some users need Compound's extreme security, some need Morpho's flexible efficiency, and some need Aave's robust balance. The task of protocols is not to find a "perfect model," but to clearly inform users: what trade-offs they are making, what risks they are assuming, and what returns they are gaining. Transparency and honesty are ultimately more important than any governance model.