Morpho oracles explained: how markets price collateral
Every Morpho market has its own fixed oracle that prices the collateral. Learn the main oracle types, what can go wrong with each, and how to check a market.
Updated
A lending market has to know what the collateral is worth. Otherwise it cannot tell how much someone may borrow or when a loan has become too risky. On Morpho, that job belongs to the market's oracle. Because every market picks its own oracle and can never change it, the oracle is one of the most important things to understand about any market or vault.
What a Morpho oracle does
An oracle is a smart contract that supplies a price. A Morpho oracle answers one question: how many units of the loan asset is one unit of the collateral worth right now? For a market that lends USDC against cbBTC, it answers "how many USDC is one cbBTC worth?"
The Morpho contract asks the oracle for this price whenever it needs to check a loan:
- when someone borrows or withdraws collateral, to make sure the loan stays within the market's LLTV;
- when someone tries to liquidate a loan, to decide whether it is liquidatable and how much collateral the liquidator receives.
The price does not decide the interest rate. Rates come from utilization, as explained in how Morpho interest rates work.
Who picks the oracle
Morpho does not choose oracles. Whoever creates a market chooses its oracle, and the choice is locked in forever along with the other four market settings. Two markets with the same assets and LLTV but different oracles are two different markets.
That places the responsibility on the people choosing markets. For vault depositors, that is the curator: when a curator lets a vault lend into a market, it accepts that market's oracle. You can see which markets a vault uses on the vaults page, and each market's settings on the markets page.
The main kinds of oracle
| Type | How it prices the collateral | Typical use | Main weakness |
|---|---|---|---|
| Market price feed | Reads prices published by oracle networks such as Chainlink, Redstone, Pyth or Chronicle, often combining two feeds, for example BTC in dollars and USDC in dollars | Volatile collateral, such as bitcoin or ETH against a stablecoin | Depends on the feed provider being accurate, live and hard to manipulate |
| Exchange rate | Reads a conversion rate from the token's own contract, for example how much stETH one wstETH is worth | Wrapped or yield-bearing tokens against the asset they wrap | Does not see the token's market price, so it misses a sell-off or a depeg |
| Fixed price | Uses a constant, for example one stablecoin equals one dollar | Assets meant to be worth the same, such as two dollar stablecoins | If the collateral loses its value, the oracle keeps reporting the old price |
Many real oracles mix these. A market for a yield-bearing dollar token might combine the token's exchange rate with a fixed one-dollar price for the asset underneath. Morpho's reference oracle contract, MorphoChainlinkOracleV2, supports these combinations. Details are in the oracle page of Morpho's documentation.
What can go wrong
- The oracle price and the real price split apart. This is the biggest risk for exchange rate and fixed price oracles. If the collateral's market price collapses but the oracle still reports the old value, loans are never flagged for liquidation. Lenders are left holding loans backed by collateral worth far less than the market thinks, and the loss only becomes visible later.
- Manipulation. If a price feed follows a thinly traded token, someone may push its price up, borrow against the inflated value and walk away, leaving bad debt.
- Misconfiguration. Oracles must scale prices correctly for each token's number of decimals. A mistake can value collateral at many times its real worth, and because the setting is permanent, the only fix is to stop using the market.
- Stale or stopped feeds. A feed that stops updating keeps reporting its last price.
- Control by a third party. Some price sources are run by a single company or can be changed by an administrator. The market inherits that trust.
Real cases where these risks played out are described in Morpho risks explained.
Why the oracle decides your liquidation
For borrowers, the oracle price is the only price that counts. A loan is liquidated when the oracle says so, not when an exchange shows a lower price. The reverse is also true: a brief crash on one exchange does not cause liquidations unless the oracle reflects it. Liquidators also receive collateral valued at the oracle price. If the oracle lags behind a falling market, the collateral they receive is worth less than the oracle says, liquidating can stop paying, and bad debt can build up. The rules are in Morpho LLTV and liquidations explained.
How to check a market's oracle
- Find the oracle address in the market's settings. The Morpho app shows it on each market page together with the price feeds it uses.
- Ask what kind of oracle it is. For a volatile collateral, a market price feed is expected. For a fixed price or exchange rate oracle, ask whether the collateral could ever trade below that value.
- Check who runs the underlying feeds and how often they update.
- Compare the oracle price with the market price of the collateral. A persistent gap is a warning sign.
Common questions
Who chooses the oracle for a Morpho market?
The person or team that creates the market. Morpho itself does not pick or approve oracles, and the choice cannot be changed later.
Can a Morpho market's oracle be changed?
No. The oracle is one of the five market settings fixed at creation. A market with a different oracle is a different market.
What is a fixed-price oracle?
An oracle that reports a constant price, for example one stablecoin equals one dollar. It works while that is true, but it will not react if the collateral loses its value.
Does the oracle price set my interest rate?
No. The oracle only values collateral for borrowing limits and liquidations. Interest rates come from the market's utilization and its interest rate model.