OwlLendingAdapter

OwlLendingAdapter is a middleware contract that enables Owl Smart Wallets to access DeFi lending markets autonomously. It orchestrates multi-step borrowing workflows by chaining operations across Morpho (a lending protocol) and the USDL vault, allowing AI agents to supply collateral, borrow USDC, and mint USDL in atomic transactions.

Overview

This adapter simplifies complex DeFi operations into single-transaction workflows, essential for autonomous AI agent operation:

1. Supply & Borrow Flow: Deposit collateral (WBTC/WETH) → Borrow USDC from Morpho → Deposit USDC to USDL Vault → Receive USDL

2. Repay & Withdraw Flow: Burn USDL → Withdraw USDC from USDL Vault → Repay Morpho debt → Withdraw collateral

By bundling these steps, the adapter reduces transaction overhead and enables atomic DeFi operations that can be executed by AI agents through MCP tools without requiring multi-step coordination.

Key Features:

• Atomic supply-and-borrow operations

• Collateral management through Morpho protocol

• USDL minting/burning via vault integration

• Authorization-based security model

• Gas-optimized single-transaction flows

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Architecture

The adapter integrates with four core components:

Component	Role
Morpho	Decentralized lending protocol for collateral supply and USDC borrowing
USDC	Intermediate borrowed asset
USDL Vault	ERC-4626 vault that converts USDC deposits into USDL
USDL Token	Final stablecoin minted to the user

Authorization Model: Users must grant authorization to the adapter via morpho.setAuthorization(adapter, true) before the adapter can manage their positions. This follows Morpho's operator pattern for secure delegation.

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State Variables

usdc

IERC20 public immutable usdc

The USDC token contract address. USDC is borrowed from Morpho and deposited into the USDL vault.

usdl

IERC20 public immutable usdl

The USDL stablecoin token contract address. USDL is minted when USDC is deposited to the vault and burned during repayment.

usdlVault

IERC4626 public immutable usdlVault

The USDL vault contract implementing ERC-4626. Handles USDC deposits and USDL minting/redemption.

morpho

IMorpho public immutable morpho

The Morpho lending protocol contract. Manages collateral supply, borrowing, and debt repayment.

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Constructor

constructor(
    address _usdc,
    address _usdl,
    address _usdlVault,
    address _morpho
) Ownable(msg.sender)

Initializes the adapter with protocol addresses. All addresses are immutable after deployment.

Parameters:

Name	Type	Description
_usdc	address	USDC token contract address
_usdl	address	USDL token contract address
_usdlVault	address	USDL ERC-4626 vault address
_morpho	address	Morpho lending protocol address

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Core Functions

supplyAndBorrowUSDL

function supplyAndBorrowUSDL(
    address collateralToken,
    uint256 collateralAmount,
    uint256 borrowAmountUSDC,
    MarketParams calldata marketParams
) external

Executes an atomic supply-and-borrow operation: supplies collateral to Morpho, borrows USDC, deposits USDC to the USDL vault, and mints USDL to the caller.

Prerequisites:

• Caller must approve the adapter to spend collateralAmount of collateralToken

• Caller must authorize the adapter in Morpho: morpho.setAuthorization(adapter, true)

• Sufficient collateral ratio to support the borrow amount per Morpho market rules

Parameters:

Name	Type	Description
collateralToken	address	Address of the collateral token (e.g., WBTC, WETH)
collateralAmount	uint256	Amount of collateral to supply to Morpho
borrowAmountUSDC	uint256	Amount of USDC to borrow from Morpho (converted to USDL)
marketParams	MarketParams	Morpho market parameters struct defining the lending market

Flow:

1. Transfer collateralAmount from caller to adapter

2. Supply collateral to Morpho on behalf of caller

3. Borrow borrowAmountUSDC USDC from Morpho

4. Deposit USDC to USDL vault

5. Transfer minted USDL to caller

Usage Context: AI agents use this function via MCP tools to establish leveraged positions. The atomic nature ensures the agent doesn't hold intermediate USDC state.

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repayDebt

function repayDebt(
    uint256 usdlAmountToRepay,
    MarketParams calldata marketParams
) external

Repays USDL debt to Morpho by burning USDL, withdrawing USDC from the vault, and repaying the Morpho loan.

Prerequisites:

• Caller must approve the adapter to spend usdlAmountToRepay USDL

Parameters:

Name	Type	Description
usdlAmountToRepay	uint256	Amount of USDL to repay (burned and converted to USDC)
marketParams	MarketParams	Morpho market parameters struct for the loan

Flow:

1. Transfer USDL from caller to adapter

2. Withdraw USDC from USDL vault (burning USDL)

3. Repay USDC debt to Morpho on behalf of caller

Post-Conditions: After repayment, the caller can withdraw collateral directly from Morpho using morpho.withdrawCollateral().

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repayAndWithdraw

function repayAndWithdraw(
    address, /* collateralToken - inferred from marketParams */
    uint256 usdlAmountToRepay,
    uint256 collateralAmountToWithdraw,
    MarketParams calldata marketParams
) external

Atomic repayment and collateral withdrawal: repays USDL debt and withdraws collateral in a single transaction.

Prerequisites:

• Caller must approve the adapter to spend usdlAmountToRepay USDL

• Caller must authorize the adapter in Morpho: morpho.setAuthorization(adapter, true)

• Remaining collateral after withdrawal must satisfy Morpho's collateralization requirements

Parameters:

Name	Type	Description
unused	address	Collateral token address (inferred from marketParams.collateralToken)
usdlAmountToRepay	uint256	Amount of USDL to repay
collateralAmountToWithdraw	uint256	Amount of collateral to withdraw and return to caller
marketParams	MarketParams	Morpho market parameters struct

Flow:

1. Transfer USDL from caller to adapter

2. Withdraw USDC from USDL vault

3. Repay USDC debt to Morpho

4. Withdraw collateral from Morpho

5. Transfer collateral to caller

Usage Context: AI agents use this function to atomically exit positions, ensuring collateral is returned in the same transaction as debt repayment. Critical for liquidation avoidance strategies.

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Security Considerations

Authorization Model:

• Users must explicitly authorize the adapter in Morpho before it can manage their positions

• The adapter never holds user funds beyond the transaction scope

• All operations are executed on behalf of msg.sender, maintaining caller accountability

Collateral Safety:

• The adapter does not enforce collateralization ratios — these are handled by Morpho

• Users must ensure sufficient collateral before borrowing

• Withdrawals that would violate collateral requirements will revert at the Morpho level

Access Control:

• Inherits from OpenZeppelin Ownable for admin functions (if any)

• Core functions are permissionless — any authorized user can call them

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Integration Guide

For AI Agents (MCP Integration)

AI agents interact with the adapter through MCP tools that wrap these functions:

Example: Borrow USDL via MCP

await mcp.call("owl_supplyAndBorrow", {
  collateralToken: "0x...", // WBTC address
  collateralAmount: "100000000", // 1 WBTC (8 decimals)
  borrowAmountUSDC: "50000000000", // 50,000 USDC (6 decimals)
  marketParams: { /* Morpho market config */ }
});

Example: Repay and Withdraw

await mcp.call("owl_repayAndWithdraw", {
  usdlAmountToRepay: "50000000000000000000000", // 50,000 USDL (18 decimals)
  collateralAmountToWithdraw: "100000000", // 1 WBTC
  marketParams: { /* Morpho market config */ }
});

For Smart Contract Integrators

Setup Authorization:

// User must authorize adapter before use
morpho.setAuthorization(adapterAddress, true);

Direct Contract Call:

// Approve tokens
IERC20(wbtc).approve(adapterAddress, collateralAmount);

// Supply and borrow
adapter.supplyAndBorrowUSDL(
    wbtcAddress,
    1e8, // 1 WBTC
    50000e6, // 50,000 USDC
    marketParams
);

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MarketParams Reference

The MarketParams struct is defined by Morpho and contains:

Field	Type	Description
loanToken	address	The token being borrowed (USDC)
collateralToken	address	The token used as collateral (WBTC/WETH)
oracle	address	Price oracle for the market
irm	address	Interest rate model address
lltv	uint256	Liquidation Loan-to-Value ratio

These parameters define the specific Morpho lending market being used and must match an existing market configuration.