Gelato and Morpho Launch Embedded Non-Custodial Crypto-Backed Loans in Beta

Gelato, in collaboration with Morpho Labs, has launched a new embedded lending product that allows exchanges, wallets, and fintech apps to offer non-custodial crypto-backed loans directly within their platforms. The beta release is now live on Arbitrum, Optimism, Polygon, Base, and Scroll, with support for Katana expected soon.

Product Overview

The offering enables users to borrow stablecoins like USDC against crypto collateral, using a simplified interface that mimics mainstream financial applications. The loan process is embedded directly in third-party applications and does not require users to interact with traditional blockchain interfaces. There are no wallet extensions, seed phrases, or gas fees involved for end users.

How It Works

Users can create a smart wallet via email or social login, deposit supported crypto as collateral, and borrow USDC instantly. The loan can be repaid at any time. The process is designed to be fully onchain but abstracted for a user-friendly experience.

Key technical features include:

• One-click wallet onboarding
• Gasless borrowing and repayment
• No credit checks
• Full composability and non-custodial architecture

All transactions are handled through smart contracts onchain, with no reliance on centralized custody.

Technology Stack

The lending system is built on two primary components:

Morpho Protocol:
An open-source, audited lending infrastructure that handles loan parameters, interest rates, and collateral management onchain. Governance and execution are handled entirely at the protocol level.

Gelato Smart Wallet SDK:
A toolkit for implementing EIP-7702 and ERC-4337-compatible smart accounts. The SDK allows embedded wallet creation, gas sponsorship, and abstracted transaction flows across more than 50 supported blockchains.

The combination of both technologies enables third parties to integrate lending into their products without developing new backend infrastructure or taking on custody risk.

Use Cases and Integration

The embedded lending solution is targeted at crypto exchanges, custodians, brokers, wallets, and fintech platforms. It allows these providers to deploy crypto-backed lending functionality with minimal development overhead and no user custody requirements.

The beta version currently supports USDC borrowing using BTC or other crypto assets as collateral. Wallet onboarding, loan execution, and repayment are all embedded directly into the host app.

Security and Roadmap

Gelato has stated that it plans to expand its Smart Wallet SDK’s functionality over the coming months. Upcoming features include support for passkeys, multi-signer 2FA, and account recovery modules, intended to improve wallet security and user access.

Paul Frambot, CEO of Morpho Labs, commented that the Morpho protocol was built for integrations like this, noting the importance of enabling self-custodial lending in a user-friendly format.

Availability

The product is live in beta on:

• Polygon
• Arbitrum
• Optimism
• Base
• Scroll

Support for Katana is currently in development.

A public demo is available for users to test the borrowing flow, which includes smart wallet creation, collateral deposit, and loan issuance.