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Gauges

Gauges introduce a voting mechanism to determine how rewards are allocated between markets. From the point of view of the token holders, it lets them voice their preferred markets and influence how much rewards will be distributed to these markets. From the point of view of the protocol, the voting system is a great way to discover new use cases while being aligned with Morpho's goal to progressively decentralize the protocol.

Reward emission accross epochs

An age consists of three epochs, and each of those epochs will thus be allocated part of the MORPHO tokens voted for the corresponding age. Please refer to Ages and Epochs to see what has been chosen in the past and for the current age and epoch.
Let
MeM_e
be the number of MORPHO tokens distributed for the epoch.

Market allocation

The allocation of tokens between markets in a particular epoch is determined by the gauges mechanism. Before each epoch, token holders will be able to vote on the markets accross the different instances of Morpho. In particular, each market of Morpho-Compound and each market of Morpho-Aave-v2 is a separate vote alternative. Each MORPHO token counts for one vote, and the allocation of one market is weighted linearly according to the number of votes it receives. We believe that this solution allows for a distribution of rewards that accurately reflects the results of the vote, notably preventing rewards to be artificially allocated to markets that are not used.
Let
vθv_\theta
be the number of votes for the market
θ\theta
.
Number of MORPHO tokens distributed to the market
θ\theta
for the epoch:
​
mθ=Me×vθ∑θvθm_\theta = M_e \times \frac{v_\theta}{\sum_\theta v_\theta}
​

Borrow/supply allocation

The allocation of rewards between supply and borrow for a given market follows the repartition of supply and borrow on the market at the beginning of the epoch. In other words, the allocation of the supply side is weighted by the total supply (and similarly for the borrow side). We believe this solution to be healthy for the protocol at the moment: it prevents voting from introducing an imbalance between the two sides of the market. More research is conducted on how to incentivize better matching, and changing the peer-to-peer rate is being considered.
Let
SθS_\theta
be the total supply of the market
θ\theta
at the beginning of the epoch.
Let
BθB_\theta
be the total borrow of the market
θ\theta
at the beginning of the epoch.
Number of MORPHO tokens distributed to the supply side of the market
θ\theta
for the epoch:
​
mθS=mθ×SθSθ+Bθm_\theta^S = m_\theta \times \frac{S_\theta}{S_\theta + B_\theta}
​
Number of MORPHO tokens distributed to the borrow side of the market
θ\theta
for the epoch:
​
mθB=mθ×BθSθ+Bθm_\theta^B = m_\theta \times \frac{B_\theta}{S_\theta + B_\theta}
​