A Deep Dive into Euler’s products: Vaults, Markets, Earn and EulerSwap

Euler’s vision for modular lending

Decentralized lending is the historical pillar of on-chain finance. Since 2020, many lending and borrowing platforms have revolutionized the use of digital assets, allowing users to access new yield and liquidity strategies without relying on traditional intermediaries.

The traditional model used by lending applications is based on shared, overcollateralized pools, where users can freely deposit and borrow assets. This is the model Euler used at the launch of the protocol’s first version in 2021.

However, Euler quickly realized that this first version suffered from an overly rigid architecture, with no risk isolation between pools and a limited asset listing process controlled by the DAO. This lack of modularity clearly hindered the protocol’s ability to evolve.

It is in this context that Euler V2 was launched in September 2024. This new version reverses the usual lending app model by introducing a fully modular and permissionless architecture, built on two core components:

• Euler Vault Kit (EVK): a development kit for creating vaults based on the ERC-4626 standard. These are independent and highly customizable structures (accepted collateral, interest rate curves, deposit limits, etc.), deployable without permission and capable of integrating specific governance, risk management, or pricing rules.
• Ethereum Vault Connector (EVC): an open-source tool that enables vault interoperability, allowing a user to deposit an asset in one vault and use that position as collateral in another vault.

---

Euler V2: Lending, Borrowing, and Earning

Euler V2 introduces a fully modular architecture, designed to overcome the limitations of traditional lending models. The protocol is now structured around two core components: Vaults and Markets, which define economic interactions, risk management, and governance parameters.

Vaults

A vault is a smart contract based on the ERC-4626 standard and can be deployed using the Euler Vault Kit. It is an independent structure designed to hold tokens deposited by users and made available to borrowers in exchange for interest.

A vault in Euler V2 is defined by several parameters:

• A single ERC-20 token that can be deposited into the vault (e.g. USDC, ETH, etc.)
• A price oracle to determine the real-time value of the token and potentially trigger liquidations
• An interest rate model to define the borrowing cost of the vault’s token

In simple terms, each asset listed on Euler has its own customized vault. These vaults can be managed in two different ways:

• Managed vaults: overseen by risk curators who can adjust the parameters over time
• Unmanaged vaults: entirely autonomous, with no third party able to modify their parameters over time

The creator of a vault can define a wide range of parameters, including the LTV ratio, the oracle used to price the asset, deposit limits, and the interest rate curve.

Vaults are the foundational building blocks of Euler V2, containing both the collateral deposited by borrowers and the funds supplied by lenders to earn interest.

You can view all the vaults available on Euler and the connections between them via the open positions created by users on the market.

Markets

Vaults are isolated, configurable structures that hold a single asset. However, they do not enable lending or borrowing on their own. In order for a user to borrow one asset against another as collateral, at least two vaults need to be combined into a structure called a Market.

This mechanism enables the creation of fully permissionless lending markets, where users can deposit one asset as collateral and borrow another.

Each market has its own risk parameters, including a Loan-To-Value (LTV) ratio, a liquidation threshold, penalties, and other rules that can be customized for each asset pair.

This architecture allows for both simple lending markets (one collateral asset, one borrowed asset) similar to Aave, as well as more complex structures involving multiple vaults and interconnected assets, as seen on Morpho.

Strategies and Earn Vaults

Despite the transparency of the protocol, it is not always easy for users to deploy capital efficiently on Euler, especially without the technical expertise required to evaluate market risks.

At present, the “Strategies” tab in the application already provides a simplified interface to execute certain operations, particularly leverage loops across lending and borrowing markets to obtain yield multipliers. This layer helps users interact with the lending markets more easily, but it remains limited to relatively simple strategies.

In the future, Euler plans to launch the Euler Earn product, which will offer a much more powerful framework through a dedicated infrastructure: the Earn Vaults. These vaults will be programmable smart contracts designed to optimize capital deployment and automate fund management.

Strategies enabled by Earn Vaults will include:

• depositing or borrowing across multiple markets
• automated collateral management
• interest reinvestment or complex leverage loops
• capital optimization based on predefined rules

Euler will allow any curator to create and deploy an Earn Vault for a specific ERC-20 token. Funds deposited by users will then be allocated across various Euler V2 vaults in an optimized way. Curators will be able to manage these allocations without being able to withdraw funds themselves, and users will retain the ability to withdraw at any time.

The core value of this upcoming product is to give users access to advanced allocation strategies that typically require a high level of technical knowledge. In many ways, it will serve as a secure and modular abstraction layer, similar to what protocols like Fluid offer.

Moreover, this infrastructure will enable third-party protocols to build custom products on top of Euler, by integrating the base components (vaults + markets) into higher-level strategies. This opens the door to sophisticated use cases such as structured products, delta-neutral vaults, and leveraged vaults.

Use cases and strategies

Euler V2’s modular architecture enables much more than basic lending. Users can combine different vaults, tokens, and markets to build complex strategies that are often impossible to execute on traditional protocols. Here is a breakdown of the most relevant use cases:

• Leverage loops on LSTs and LRTs: Users can combine several vaults by depositing a Liquid Restaking Token (LRT), borrowing a Liquid Staking Token (LST), depositing it again to borrow WETH, swapping and looping. This strategy, widely used, has made the WETH vault one of the most utilized on Euler.
• Leverage on LP tokens: Users can deposit an LP token (e.g. WETH/LST) as collateral to borrow more WETH and LST, thereby increasing their position in the AMM. This enables leveraged exposure to LP yield, while benefiting from gas-efficient AMMs.
• Hedging impermanent loss: Some vaults accept LP tokens (like WETH/USDC) as borrowable assets, with WETH and USDC as collateral. Users can borrow the LP token to hedge impermanent loss or take indirect short positions.
• Stablecoin carry trades: Euler allows custom vaults where USDC can be borrowed against USDT and vice versa. If one APY is higher than the other, users can take advantage of this spread through carry trades (e.g. borrow USDT, swap for USDC, redeposit, etc.).
• Leverage on RWAs: Some vaults allow the deposit of high-yield RWAs as collateral, with transfer restrictions enforced via hooks. Users can then borrow stablecoins to buy more RWAs and create controlled leverage on these assets.
• Delta-neutral strategies: A user can borrow a volatile asset (like ETH) against a stable collateral (like USDC), sell it, and maintain a delta-neutral position while earning yield on the borrowed asset.
• Cross-protocol yield farming: Assets borrowed on Euler can be redeployed in other protocols (Pendle, Yearn, Morpho, etc.) via Earn Vaults, allowing users to optimize total yield on borrowed capital.
• Structured products and automated strategies: Third-party protocols can build Earn Vaults that replicate specific risk-return profiles (e.g. risk parity or income-enhanced), or automatically allocate funds across vaults based on interest rates, liquidity, and market conditions.

---

Euler Swap

A unified system

Euler recently announced the launch of Euler Swap. The goal of this protocol is to combine a DEX and a lending platform to further maximize users’ capital efficiency.

When a user provides liquidity to a pair on Euler Swap, those funds are automatically deposited into Euler V2. This allows liquidity providers to optimize returns by earning interest from two sources: swap fees and lending yields.

This novel structure also enables liquidity providers to use their LP positions as collateral to borrow other assets, reducing capital fragmentation and enabling new possibilities:

• Just-in-Time Liquidity: if a pool lacks the liquidity needed to execute a swap, the protocol can borrow the required funds to ensure optimal execution.
• Impermanent loss mitigation: LPs can borrow directly against their position to hedge against price fluctuations of the underlying assets and reduce impermanent loss exposure.

Euler Swap also offers additional configuration options, including the ability to select the bonding curve used for asset swaps within a pool. This feature allows for optimization of liquidity on stable pairs or, conversely, to encourage price movements.

Use cases and strategies

Just like Euler V2, Euler Swap is designed to offer a high degree of customization, laying the foundation for a wide range of innovations and strategies that combine lending and trading:

• Leveraged LP strategies: Users can deposit a pair of assets (e.g. ETH/USDC), receive LP tokens, use them as collateral to borrow the underlying assets, and redeposit to amplify their exposure.
• Multi-pair arbitrage: Traders can borrow via Euler Swap to execute arbitrage strategies between different pools (on Euler or elsewhere), while using their collateral efficiently.
• Optimized liquidity deployment: By adjusting bonding curves (e.g. stable curve vs. linear), LPs can tailor their strategy to the characteristics of each pair (correlation, volatility) and maximize returns.
• Delta-neutral or hedged strategies: Users can deposit an LP position, borrow a stable asset (e.g. USDC) against it, and hedge against volatility while generating yield on both sides.
• Dynamic liquidity provisioning: Thanks to temporary borrowing capabilities, some participants can provide liquidity only when needed (just-in-time), while keeping the rest of their capital deployed elsewhere.

---

Mapping the Euler ecosystem

Behind Euler’s modular architecture lies a complete ecosystem that extends the reach of the protocol and facilitates its integration across the DeFi landscape.

Deployment across multiple blockchains

At the time of writing, over $2.2 billion has been deposited into Euler, with the majority still on Ethereum ($1.45 billion). However, the protocol has expanded to several EVM-compatible chains, including Avalanche ($275 million), Unichain ($245 million), Sonic ($65 million), as well as BNB Chain, Base, Swellchain, BOB, and Berachain.

Curators and strategic partners

Euler relies on a network of independent curators who oversee the creation and management of vaults and strategies. Some specialize in risk management (Risk Curators), others in yield optimization (Earn Curators). Notable names include:

• Gauntlet, Alterscope, Re7 Labs, Apostro, Tulipa Capital, Swaap Labs, K3 Capital, Mev Capital
• Integrated projects like Usual, ZeroLend, and Relend Network
• And of course, Euler DAO, which still acts as a curator for several protocol markets

Oracles and bridges

To ensure accurate pricing and smooth capital flow, Euler integrates with multiple oracles and cross-chain bridges:

• Oracles: Chainlink, Pyth, Redstone, Chronicle, API3, Eoracle, Balancer (via TWAP), Lido (Accounting Oracle), Pendle (oracle via AMM)
• Bridges: LayerZero, Stargate, Swell Superbridge

Other integrations

Euler’s activity is also supported by incentive distribution platforms like Royco, Merkl, and Turtle Club, which subsidize certain strategies or markets. On the user side, several tools and integrators make protocol adoption easier:

• Strategy aggregators: DeFi Saver, Beefy, Summer.fi, Vaults.fyi
• Lending platforms and DEXs: Contango, Superlend, Bunni, Inverse Finance, Ethereal DEX, Ether.fi