When a vault's yield comes from a single borrower, calculating concentration means checking the percentage of total deposits that this loan represents. The higher the percentage, the higher your risk.
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Inside the Morpho Vault framework, this concentration calculation has a clear on‑chain logic. The Morpho V2 Vault architecture requires the Curator to set a supply cap for each risk ID. That cap directly limits how much the vault can lend into a single market or a single type of collateral. If most of a vault's yield comes from one borrower, it means that borrower's loan in a particular market now accounts for most of the money the vault has placed there.
Step 1: Calculate the borrower's effective share in the vault
Find out what percentage of the vault's total assets this borrower has taken. Locate the target market, check how much of its current totalSupplyAssets comes from the vault you are watching, and check the borrower's debt under totalBorrowAssets. The formula: single‑borrower exposure = borrower's debt / vault's total assets. If the vault has put 80% of its funds into this market, and that borrower has taken 90% of the market's available funds, then this loan makes up 72% of the vault's total assets. Completion criteria: you have a clear percentage.
Case A: Over 15%
Concentration is fairly high. Empirical discussions of Morpho's lending model have already noted: when depositors put USDC into a vault that uses ETH as collateral, they are essentially exposed to the risk of collateral price swings. Once a single borrower reaches this level of exposure, any price fluctuation or liquidation of that collateral will directly feed into the vault's share price. Morpho's official documentation explicitly lists "concentration risk across enabled markets" as one of the key risks.
Case B: Under 5%
Concentration is fairly low. The vault's yield sources are relatively diversified, so a default or exit by a single borrower won't cause a major shock.
Risk reminder
The Morpho protocol itself does not offer depositors any insurance or backstop against a single borrower default. If that borrower is liquidated because of insufficient collateral and there is still bad debt left over, the vault's share value will drop directly. In the xUSD incident of November 2025, a Curator put USDC deposits into recursive leverage loops based on xUSD. When the oracle stopped updating, an estimated 285 million to 700 million dollars' worth of assets were at risk, and multiple vaults were affected at the same time.
Step 2: Check whether the borrower is borrowing from several vaults at once
What you are assessing here is "systemic concentration", not just single‑vault concentration. Look up the borrower's address on Etherscan or Dune and see how many other Morpho markets or other DeFi protocols they are borrowing from. Completion criteria: you have confirmed the borrower's total debt size and the number of vaults involved.
Common causes of failure
Many people only look at a vault's APY, never asking "who is paying that APY?" A vault's displayed APY may be entirely propped up by a single borrower. The Curator's monitoring system (Agent) continuously tracks indicators like utilization, APY shifts and oracle health, but ordinary depositors usually do not see this data in real time. By the time the APY suddenly drops, the borrower has often already repaid or the vault has already pulled out.
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Next steps
If on‑chain data shows that a single borrower accounts for more than 15% of a vault, and that borrower's collateral consists of less liquid assets (for example some long‑tail tokens), consider actively reducing your allocation to that vault. Give priority to vaults that publicly disclose their market allocation details and keep any single market's share below 20%. Some vaults clearly list their risk framework and regularly record the reasons for parameter changes. Vaults with that kind of transparency are worth considering more.
