Euler (EUL): The secret of an impressive rise

Background on Euler

Founded in 2020 by Euler Labs and deployed on the Ethereum blockchain in December 2021, Euler Finance is a decentralized lending and borrowing protocol. From the outset, the protocol stood out thanks to its modular architecture and permissionless market creation model.

At the time, existing lending players like Aave and Compound required a governance vote before listing a new asset on their platforms. Euler broke away from this model by allowing users to create a market for any ERC-20 token, provided it had a WETH pair on Uniswap.

This unique value proposition enabled Euler to attract a growing user base and become a key player in the decentralized lending sector. One year after launch, Euler’s TVL exceeded $300 million.

In March 2023, Euler’s growth was halted by a $197 million hack. With the help of cybersecurity researchers, the Euler team managed to recover the majority of the stolen funds, resulting in no user losses.

Despite the incident, Euler demonstrated resilience and now boasts a TVL of over $1 billion, an 850% increase since the beginning of 2025. So how did the Euler team rebuild user trust and come back so strongly?

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The Comeback with Euler V2

From Crisis to Rebirth

Although the Euler team managed to recover all of the stolen funds from the hack (and even more, thanks to the rise in ETH value), they did not immediately choose to relaunch the protocol. Instead, what would later be referred to as “Euler V1” was simply put on hold.

At that time, the Euler team had already been working for some time on the development of a V2. So they decided to take the time needed to finalize this new version of the protocol, making the most of the experience gained with V1.

Euler V2 was finally announced in February 2024 and officially launched on Ethereum mainnet in September 2024, more than a year and a half after the incident.

What’s New in Euler V2

In Euler V1, the architecture was monolithic. All assets (ETH, USDC, wBTC, etc.) shared a single liquidity pool. Token listings were permissionless, but key parameters (collateralizability, oracles, LTV ratios, etc.) were centralized and governed by a three-tier risk classification, of which only the safest tier could be used as collateral.

Euler V2 introduces a radically different approach, built around a modular framework: the Euler Vault Kit (EVK). Each market is now an independent vault, compliant with the ERC-4626 standard, and can be deployed permissionlessly.

These vaults are isolated by default but can be interconnected through a component called the Ethereum Vault Connector (EVC). This system allows assets from one vault to be used as collateral in another, while maintaining explicit risk separation.

Each vault can be freely configured at deployment: collateral ratios, price oracles, borrowing and deposit caps, interest rate type (fixed or variable), liquidation strategies, and more. A vault may be:

• unmanaged, i.e., fully autonomous with no third party able to alter its parameters post-launch;
• or managed by a third party (called a risk curator), who can dynamically adjust vault parameters in response to market conditions.

This modularity enables custom market creation, tailored to a wide range of assets and use cases, while giving users the choice between more or less secure configurations depending on their risk appetite.

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Euler’s Bootstrap Strategy

The rEUL Incentive Program

Following the launch of Euler V2, the team had to rekindle momentum to regain user trust and attract new liquidity. This led to the launch of the rEUL (Reward EUL) incentive program.

This decision followed discussions with the community, which opposed yet another user points campaign. Instead, rEUL was designed to distribute up to 5% of the total EUL token supply over a one-year period, rewarding early V2 users and aligning them with the protocol’s long-term vision.

Practically speaking, rEUL is a locked form of the Euler EUL token, convertible 1:1 into EUL over a six-month period. The unlock schedule is nonlinear: 20% is unlocked immediately after the first rEUL transfer to a user’s wallet, while the remaining 80% unlocks linearly over six months, until fully unlocked at maturity.

Recipients can claim their EUL at any time during the period. However, any remaining locked portion will be canceled and burned, thereby reducing the total EUL supply.

This design creates a form of time-based arbitrage: the more patient the user is, the greater their effective reward will be. Conversely, less aligned users benefit others by reducing token supply when they exit early.

Campaigns and Deployed Strategies

Euler implemented two types of rEUL distribution campaigns:

• reactive campaigns, targeting markets approved by the DAO (such as USDC, ETH, wBTC on Euler Prime),
• a matching incentive system, allowing external partners to co-finance campaigns.

For example, in November 2024, the Midas team distributed 10,000 USDC to USDC liquidity providers. Simultaneously, Euler “matched” this campaign with 3,682 rEUL, adding a deferred reward layer to boost market appeal.

rEUL allocations are managed by a committee designated by the DAO, using a dynamic logic: markets demonstrating a strong product-market fit and sufficient liquidity are eligible, and monthly allocations can vary significantly based on evolving demand and performance.

Insights from an Euler Risk Curator

Risk Curators play a crucial role in the Euler ecosystem, as they are responsible for the protocol’s safety and efficiency. Their responsibilities vary depending on the type of vaults they manage, but their core mission remains the same: ensuring the protocol’s security and sustainability while maximizing user yields.

As part of this report, we spoke with 0xMagikarp from MEV Capital, a Risk Curator on Euler:

“The incentive program launched by Euler strikes an interesting balance between substantial external incentives (deployed across chains like Sonic, Avalanche, Unichain, or BOB) and a sustainable internal mechanism through the fees flow. The latter captures 50% of the protocol’s revenues to fuel a continuous EUL buyback process, thereby reinforcing alignment between users, curators, and the DAO.”

Asked about the role of rEUL within Euler, he explained:

“rEUL plays a key role in bootstrapping strategic markets that, by nature, do not benefit from ecosystem incentives or are facing intense competition.”

On the Risk Curator’s work within Euler, we asked him about the appeal of the rEUL reward program:

“What we found particularly notable as curators is the governance sophistication behind these incentives. The DAO, supported by service providers like Objective Labs, systematically evaluates the return-on-spend ratio of each campaign. The ambition is clear: every program must meet top-tier industry benchmarks within a few weeks. This helps avoid the common inefficiencies of over-incentivization that we still see too often elsewhere.”

Finally, we asked him about the competitive advantages Euler offers compared to other lending protocols MEV Capital might consider operating on:

“What also convinced us is Euler’s high-quality architecture. Liquidations are extremely smooth for users, even those managing highly leveraged positions, and the protocol takes no cut—unlike many other players. Moreover, the modular architecture of the vaults enables advanced integrations with other protocols: we can consider direct partnerships, accept certain vault receipt tokens as collateral, and integrate them into markets like Pendle or various liquidity pools.”

Quantitative Impact Analysis

These campaigns offered insight into the protocol’s real appeal. If users claim their EUL early (before the six months) it suggests the EUL price exceeds the opportunity cost of having funds locked, potentially signaling an overly generous campaign, “farm and dump” behavior, and future TVL drops.

On the other hand, if users don’t claim before the six-month mark, it means EUL’s price is below the opportunity cost of locking funds—indicating attractive long-term rewards and likely TVL growth.

At the time of writing, a total of 690,681 rEUL has been distributed (3.7% of circulating EUL supply), representing roughly $3.3 million in costs for the Euler team. Notably, only 30,395 rEUL has been unlocked and 13,384 EUL transferred to users.

In other words, we’re clearly in the second scenario outlined above.

Meanwhile, TVL has grown from around $70 million before the Reward Euler program launch to over $2 billion today, a massive 3,200% increase.

More importantly, the cost-efficiency of the rEUL campaign has been exceptional, with $1.7 spent for every $1,000 of TVL gained. However, as TVL continues to climb, the marginal cost of acquiring new TVL also rises. This increasing cost may signal to Euler that the bootstrap phase is coming to an end.