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Mainstreet Update — Morpho, Proof of Reserves & Liquidity
We want to address the current situation around the Mainstreet Morpho market and provide clarity.
First and most importantly: Mainstreet remains fully backed.
The recent shutdown of our third-party proof-of-reserves dashboard does not reflect any loss of assets or deterioration in portfolio quality. This is an infrastructure and reporting issue, not a solvency issue.
As a result of the dashboard going offline, the oracle supporting the Morpho market is expected to pause within the next 24 hours. This has created understandable concern and triggered elevated borrowing rates as leveraged loopers rush to unwind positions.
We are actively responding on multiple fronts:
Engaging alternative proof-of-reserves providers to restore independent verification as quickly as possible.
Continuing to unwind box spread positions and redeploy liquidity into the minter / Morpho ecosystem.
Preparing to act as liquidity provider and liquidator of last resort if necessary to prevent disorderly market conditions.
Over the past several days, we have already unwound our shortest-dated box positions and released free cash, with more than $8 million in USDC already transferred to the minter to support liquidity and assist with unwinds.
Mainstreet’s core portfolio consists primarily of box spreads. These are structurally low-volatility positions designed to converge to fair value at expiry, making them highly predictable from a NAV perspective when held to maturity.
However, box spreads are not always frictionless to exit early.
Selling before expiry may involve:
Transaction fees
Wider bid/ask spreads
Temporary market-maker discounts
Liquidity-dependent haircuts based on expiry and position size
This means that while our portfolio remains fully backed, converting positions into immediate liquidity depends on prevailing market depth and market-maker appetite.
Our priority is clear: protect NAV while maximizing liquidity for the protocol.
We are willing to accept elevated fees and modest execution costs to accelerate liquidity release, supported by the protocol insurance fund. However, we will not realize losses beyond the insurance fund purely to force immediate exits. If market pricing becomes materially irrational, we will allow positions to continue toward expiry and realize full value at settlement, as outlined in our risk disclosures and discussions with key partners.
If borrowing rates continue to rise and liquidations occur, Mainstreet is prepared to step in as liquidator of last resort. As additional USDC is freed from box maturities and unwinds, part of that capital may be deployed to absorb and liquidate stressed Morpho positions to minimize bad debt risk.
Weekend liquidity is currently limited, and market-maker quotes are materially less favorable than during normal trading hours, which temporarily slows execution. We expect to have a clearer picture over the coming days and will continue providing updates as progress is made.
We understand this is a stressful situation and sincerely appreciate the community’s patience and trust.
Our commitment remains unchanged: protect user funds, preserve NAV, and restore normal market conditions as quickly and responsibly as possible.
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