What is Euler?
Euler is a modular lending protocol that allows anyone to create customized lending markets. Unlike monolithic lending platforms, Euler enables permissionless market creation with configurable risk parameters, oracles, and collateral rules.
How it works
Euler v2 introduced a modular architecture built around vaults. Each vault is an independent lending market with its own collateral requirements, interest rate models, and risk parameters. This modularity means vault creators can tailor markets to specific use cases.
Vaults can be configured to accept specific collateral types, use particular oracle feeds, and set custom liquidation thresholds. This flexibility enables markets for assets that wouldn't fit into one-size-fits-all lending pools.
The Ethereum Vault Connector (EVC) links vaults together, allowing users to use positions in one vault as collateral in another. This creates composability between isolated markets while maintaining risk separation.
Vault types
Euler supports multiple vault configurations. Some vaults are permissionless — anyone can supply and borrow. Others are permissioned, restricting access to approved participants for compliance or risk management reasons.
Governed vaults have parameters controlled by governance or designated managers. Ungoverned vaults lock parameters at deployment, providing immutability guarantees for users who prefer fixed rules.
While both enable isolated markets, Euler's EVC creates cross-vault composability. Positions in one vault can collateralize borrowing in another, enabling more capital-efficient strategies.
Supplying and borrowing
Suppliers deposit assets into vaults and receive shares representing their position. These shares earn yield as borrowers pay interest. The interest rate adjusts algorithmically based on utilization.
Borrowers deposit collateral and borrow against it up to the vault's loan-to-value limit. If collateral value drops relative to debt, positions become liquidatable. Liquidators repay debt and receive collateral at a discount.
Risks to understand
Smart contract risk is present in any DeFi protocol. Euler v2 is a new architecture — while audited, new systems carry additional uncertainty compared to battle-tested code.
Oracle risk matters because liquidations depend on accurate pricing. Vault creators choose oracles, so the reliability of price feeds varies by market.
Governance risk exists in governed vaults where parameters can change. Ungoverned vaults avoid this but sacrifice flexibility.