Euler Returns: After $240M Hack, Euler v2 Launches as Modular Lending Layer in On-Chain Finance
Date: 2024-09-05 Author: Oliver Abernathy Categories: BUSINESS
Following a $240 million exploit in March 2023 and “one of the most comprehensive security audits in DeFi history,” the Ethereum-based protocol Euler is back with its second version.
According to the press release, Euler v1 was built for a specific use case, but Euler v2 supports a variety of use cases.
Euler v2 is a meta-lending protocol that supports an unlimited number of use cases for on-chain lending.
As such, it acts as a lending layer in on-chain finance in several ways.
First, it introduces a new framework that enables an unlimited number of use cases for on-chain lending, for both DeFi users and institutional players.
Second, it allows developers to create vaults that can use “almost any kind of digital asset” as collateral. This, in turn, opens up “new opportunities for innovation in DeFi,” the team claims.
Finally, the team says Euler v2 eliminates fragmentation and capital inefficiencies that have been huge problems in siloed lending markets.
In March 2023, the Euler Finance platform suffered a flash loan attack that resulted in the theft of over $200 million in digital assets.
The attacker returned about $102 million to the protocol.
Four Types of Custom Vaults
Euler’s final step allows developers and institutions to build lending products from scratch.
They can create highly customizable vaults for lending and borrowing, according to the press release.
They can then connect and optimize vaults for “any strategy or need.” From passive yield aggregators to complex lending and borrowing systems, “the possibilities are endless,” the announcement says.
Vaults can be either permissioned or permissionless. They are independent of governance, risk management mechanisms, asset pricing, and other factors.
In addition, vault creators determine all risk and reward parameters. They also decide whether their vault retains governance for active risk management or abandons it. In the latter case, lenders manage their own risks.
The following vault types are supported at launch:
- Unmanaged and escrowed vaults: hold deposits that can be used as collateral to borrow from other vaults, but do not earn interest for depositors as they do not allow borrowing;
- Managed vaults: suitable for passive lenders, hold deposits that can be used as collateral or borrowed, earning additional yield for depositors;
- Unmanaged vaults: come in two types - 0x for no management via collateral, and nzx, which can accept managed collateral;
- Yield aggregator vaults (a special class of managed vaults): aggregate passive lender assets that can move into any ERC4626 underlying vault, including Euler vaults with or without management, as well as external vaults such as sDAI.
Additionally, vaults can hold crypto-native fungible tokens, non-fungible assets, tokenized real-world assets (RWAs) with permissioned transfer restrictions, and natively issued synthetic assets.
‘Unique feature’: Recognize deposits in any ecosystem vault
Vault creators can deploy them permissionlessly using the Euler Vault Kit (EVK) and ‘link’ them together.
This will allow a new vault to recognize deposits in any other existing vault in the Euler ecosystem as collateral via the Ethereum Vault Connector (EVC).
This feature is unique to Euler, the team claims. They believe it can be used as a “powerful trigger mechanism” to increase liquidity in both old and new vaults.
Deposits in old vaults, the announcement says, are put to new use when new vaults recognize them as collateral.
At the same time, new vaults get a “ready-made user base” for borrowing when they accept deposits from liquid and widely used existing vaults.
Finally, Euler’s transition to v2 also means changes for the end user, the team says. This means new risk and reward management options for lending and borrowing on preferred assets, as well as new asset classes.
Lenders can choose between vaults managed by active risk managers or unmanaged vaults.
They also choose “from risk-isolated lending and borrowing pairs to address long-tail or riskier markets, to more capital-efficient vault clusters that support lending on major short-tail cryptocurrencies or price-correlated assets, such as ETH staking or restaking tokens,” the announcement concludes.
