Morpho published the whitepaper for Midnight, its non-custodial fixed-rate lending protocol, built around isolated, immutable, permissionlessly created markets with fixed maturities. Midnight implements lending and borrowing through the trading of credit and debt units, akin to zero-coupon bonds, that settle at market maturity. The implied rate is derived from the discount at which units trade, giving users predictable fixed funding costs.

The design eliminates the need for locked liquidity, with funds only sourced at execution time. The solution allows lenders to earn yield across DeFi, and withdraw only when a lending offer is filled. Markets will support single and multi-collateral configurations. The protocol also realizes bad debt at liquidation. Morpho also released the code for Midnight as the new protocol undergoes audits.

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