Peer-to-peer lending protocols such as ETHLend are capital-efficient but highly illiquid. Conversely, peer-to-pool systems are highly liquid but at the cost of capital efficiency. Indeed, there is always more liquidity available than borrowed (many lenders share the interests paid by a few borrowers, creating a spread between supply and borrowing rates). If you want to dive deeper into the limits of P2P and P2Pool, you can have a look at the following blog posts:
As a P2P layer moving funds in and out of liquidity pools to match users, Morpho offers the same capital efficiency as a P2P lending protocol by desocializing yields while remaining as liquid as the underlying pool, thanks to its fallback mechanism.
P2P is efficient, pools are liquid, and Morpho is both.