Onchain credit has been constrained to crypto-backed loans. We built Morpho Midnight to change that. It’s designed to broaden the types of loans available onchain, creating new demand and moving a step closer to bringing the $200T of global credit onchain. Of those, tokenized stocks present one of the largest opportunities.

There are mainly two ways tokenized stocks can be used in onchain credit:

• Tokenized stock-backed lending: a loan to someone who pledges their stocks, usually a whole portfolio, as collateral, a way to unlock liquidity without selling the assets.
• Tokenized stock lending: the temporary transfer of stocks from an owner to a borrower, against collateral, for a fee. Typically used for short selling, settlement coverage, and hedging.

The universe of stocks is also far larger than the handful of crypto assets used in onchain credit today. While this is a multi trillion dollar market offchain, there are still key challenges to overcome to make this work onchain, and at scale.

1. Very diverse risk and compliance requirements
   Stocks are regulated instruments. Who may hold, lend, borrow, or liquidate them can vary by asset, jurisdiction, and participant.
   A lending protocol must therefore enable users to apply different access controls and risk parameters to different markets, without requiring new infrastructure for every variation.
2. Portfolios create near-infinite combinations
   Borrowers often want to borrow against portfolios. Consider a fintech serving 500 customers, each borrowing against a portfolio of roughly 15 assets. Across that customer base, the number of potential collateral combinations quickly reaches into the hundreds or thousands.

A traditional shared lending pool would need to accept all those assets and commingle their legal and market risks for a unique lender profile. Creating separate pools can isolate those risks, but it also fragments liquidity and largely degrades the experience for both borrowers and lenders.

Supporting tokenized stocks at scale requires a different structure: one that can accommodate bespoke portfolios and compliance requirements through isolation, without fragmenting capital or the user experience.

That is what Morpho Midnight was built to do.

There’s several unique features that make midnight uniquely positioned to support tokenized-stock backed credit use cases.

Multi-collateral isolated markets: A common misconception is that isolated markets and multi-collateral borrowing are mutually exclusive. They aren't. On Midnight, a user can offer a whole portfolio of tokenized stocks as collateral and borrow against its combined value, with each portfolio functioning as its own isolated market.

Programmable compliance: Issuers of tokenized stocks often require markets to enforce access controls, such as geofencing certain jurisdictions. On Midnight, gating ‘aka’ permissioning is simply an optional market parameter, applied programmatically at the market level. This removes the need for compliance wrappers on assets or separate protocol instances, so permissioned and permissionless markets share the same infrastructure to avoid fragmentation.

Offer-based markets, not pool-based: Supporting portfolios as collateral and programmatic compliance don't solve fragmentation on their own. Midnight addresses it by moving from pool-based allocation to offer-based orders. A key unlock. Without it you would have the flexibility but not the capital efficiency. Because markets are offer-driven, bootstrapping them becomes trivial: capital can quote across many markets, so there can be a price for every portfolio pledged as collateral, and a market needs only one lender (which can be a vault powering an existing earn product) and one borrower who agree on terms.

If you're building a tokenized stock credit use case, or any asset-backed lending product, Midnight is designed for exactly this. Reach out, we'd like to hear what you're working on and see how we can help.