EulerSwap: a DEX that reinvents liquidity through lending

Euler v2 Recap

Euler is a lending protocol whose second iteration went live in September 2024. Having recently crossed $1 billion in TVL, Euler adopts an open architecture that lets anyone spin up their own markets to lend or borrow assets.

Vaults are the core building blocks of Euler v2. Each vault is a smart contract that accepts deposits of a single ERC-20 token. Euler provides a tool called EVK (Euler Vault Kit) that makes vault creation easier. Another tool, EVC (Euler Vault Connector), links several vaults together to create a market.

Within a market, each vault can be configured so that the assets deposited can serve as collateral or be borrowed by other users. This modular architecture lets you create simple systems with two vaults: one for collateral and the other for the borrowed asset, but can also power much more complex systems tying dozens of vaults together.

Despite the protocol’s youth, the many possibilities offered by Euler v2 already make it a serious competitor to older platforms such as Morpho or Aave. The recent arrival of EulerSwap extends its potential even further and could give it decisive momentum in the liquidity race.

EulerSwap Architecture

The key idea behind EulerSwap is to use the liquidity already available in the vaults to facilitate swaps. This structure offers several advantages:

• Reduction of liquidity fragmentation between DEXs and lending protocols;
• More yield for LPs, who capture both lending interest and swap fees;
• Ability to create more sophisticated strategies for liquidity providers: leverage, impermanent-loss protection, rebalancing, etc.

EulerSwap also has other, more specific features that are explained below.

Swap Operator

EulerSwap builds directly on the foundations laid by Euler v2. To participate in the DEX, an LP must first deposit funds into vaults on Euler v2. To do this, they need a market that contains at least one vault for each asset in the pair they want to provide liquidity for.

For example, an LP wants exposure to the USDT/USDC pair on Ethereum. The Euler Prime market has a vault for each of these two stablecoins. After depositing liquidity into both vaults, the LP can install the swap operator on top of the position. In short, this module creates the liquidity pool by defining its parameters (fees, price-impact curve, etc.), making the liquidity available for swaps.

A swap then is executed in this way: the trader first deposits USDT into the first vault, then receives an equivalent amount of USDC withdrawn from the second vault (minus swap fees and slippage).

The mechanics are very similar to other DEXs, but the difference is that the funds in both vaults are simultaneously available for lending: they can be borrowed (and earn interest) or serve as collateral, enabling advanced strategies.

But EulerSwap goes further.

JIT Liquidity

On a conventional DEX, liquidity is limited to the capital currently supplied in the pools. Uniswap v3 introduced concentrated liquidity, which simulates deeper liquidity within a given price range. That works well, but you’re still capped by what LPs have deposited.

With its integration into Euler v2, EulerSwap breaks these barriers by allowing liquidity to be borrowed to execute swaps. This is called JIT (Just-in-Time) Liquidity. The best way to explain it is with an example.

Let’s revisit our USDC/USDT pool. Assume the pool has no fee and no slippage for the sake of simplicity to better understand how it works. The LP has deposited $20,000, split equally between the two vaults. A trader with $100,000 USDC wants to convert their tokens to USDT. Even though the LP has only $10,000 USDT in the pool, they can still execute the trade. The trader deposits the 100,000 USDC in the vault, and the LP, who is now holding 110,000 USDC, borrows the missing 90,000 USDT, then sends 100,000 USDT to the trader. In the end, the LP holds 110,000 USDC and a 90,000 USDT debt, i.e. a net $20,000 position.

This clever mechanism can multiply liquidity dramatically (up to ×50 on stable pairs), but it also introduces debt-management risks absent from standard DEXs, requiring advanced pool settings.

Pool Configuration

Unlike traditional DEXs such as Uniswap, where all liquidity resides in a shared pool, on EulerSwap each liquidity provider is their own pool. This design diverges sharply from most of DeFi protocols, where liquidity is deposited into a contract shared by all LPs. In EulerSwap’s case, this choice is necessary because the many customisable pool parameters make fungibility difficult.

First, EulerSwap pools have parameters similar to classic DEXs:

• Trading pair: the assets that can be swapped. Note that while DEX liquidity is usually confined to a single pair, EulerSwap supports multi-asset pools, connecting one vault to several others, reducing liquidity fragmentation between vaults. Example: a USDC pool can facilitate swaps both with a USDT pool and another dedicated to ETH or other altcoins.
• Fees: Most DEXs offer at most 5 or 6 fee tiers; EulerSwap lets you pick any value between 0.001 % and 3 %.

On top of these main parameters, EulerSwap offers three more that push liquidity management further:

• Concentration: Like Uniswap v3, EulerSwap lets LPs concentrate assets to maximise liquidity and minimise price impact. But whereas v3 uses a price-range model (two bounds), EulerSwap directly modifies the AMM curve’s shape. The changes can be asymmetric, meaning the LP can set different price impacts depending on whether the price rises or falls.

• Equilibrium point: Because the AMM curve can be asymmetric, EulerSwap lets you set an equilibrium point where the two assets’ quantities balance and the curve’s curvature flips in the case of asymmetric liquidity concentration.

• LTV (Loan-to-Value): Sets how much leverage the pool can take via JIT Liquidity. The higher the LTV, the larger the swaps the pool can handle, but the greater the debt and interests, potentially leading to liquidation if not repaid in time.

EulerSwap Analysis

As mentioned, one of EulerSwap’s main strengths is its reliance on Euler v2 vault liquidity. This provides abundant capital while reducing fragmentation between lending and DEXs. The result: better yields for LPs and more efficient swaps for traders.

Such granular liquidity management is a major evolution for DEXs, equipping sophisticated actors with powerful tools to craft complex, risk-aware strategies reminiscent of TradFi. These professional players will be critical for DeFi’s growth, as their large liquidity improves market efficiency.

This customisation is further enhanced by EulerSwap’s native integration of Uniswap v4 hooks. Hooks are snippets of code run before, during, or after a swap; their versatility makes them ideal for complex investment strategies. EulerSwap adopts v4’s hook system wholesale, smoothing the learning curve for developers already familiar with it.

Despite its advantages, this infrastructure has downsides. The biggest among them is added complexity: using the protocol demands a much deeper understanding than more classic DEXs, pushing beginners further away. Since each position is a pool, LPs compete for order flow, fine-tuning pool parameters (LTV, fees, AMM curve) to maximise returns while limiting risk.

On EulerSwap, passive liquidity is less profitable, or may earn no fees at all, especially for LPs with limited capital. This competition improves overall liquidity but discourages smaller LPs who can’t keep up.

One possible fix would be curators who manage many wallets’ positions in a unified way.

EulerSwap Performance

EulerSwap launched mid-June 2025 with no official announcement. To date, the protocol has already handled over $1.8 billion in swaps and generated $35 000 in fees at the time of writing.

Most of the volume now comes from Unichain, Uniswap’s trading-focused L2. On EulerSwap, gas costs average roughly twice those of simpler contracts; on Ethereum mainnet this matters, especially for small swaps, but on L2 such costs are negligible, letting EulerSwap out-optimise its rivals.

The majority of EulerSwap’s volume is on stable pairs, notably USD-pegged stablecoins and ETH-indexed tokens. That’s unsurprising, as EulerSwap’s architecture is most efficient for large trades on such pairs.

Even though JIT Liquidity can be used on any pair, it is least risky on pairs whose price tends to stay close to their target value. On a volatile pair (e.g., ETH/USDC), a large price swing can massively increase an LP’s debt and potentially liquidate the pool if not rebalanced. On stable pairs, arbitrage keeps the price in a tight band, limiting LP debt accumulation and enabling maximal use of JIT Liquidity.

Potential applications of EulerSwap

In this section we will explore some practical implementations where EulerSwap can be used thanks to its various features.

Impermanent-loss protection

Because EulerSwap uses Euler v2 vaults for liquidity, it’s possible to take collateralised loans backed by a pair’s liquidity, natively hedging impermanent loss.

Example: On ETH/USDC, an LP can borrow the ETH in their pool and sell it for stablecoins, opening a short ETH position and creating delta-neutral exposure. Continuous rebalancing is required, and loan costs must not exceed fees plus impermanent loss, but it offers a way to tweak market exposure.

Native Leverage

In the same way a liquidity provider can dial down market exposure, they can also amplify it—and even execute a leverage strategy. Returning to our earlier example, the LP now borrows USDC against the ETH/USDC collateral, converts half of that USDC to ETH, and redeposits both assets into the liquidity pool. The loop can be repeated several times to crank exposure even higher.

The LP gains extra leverage on both ETH’s price and the pool’s yield. If that yield comfortably outstrips the borrowing cost, the strategy can be highly profitable.

Synthetic positions

Euler’s strong composability lets a single market host dozens of vaults, so LPs can build long/short setups across a wide range of ERC-20s.

For instance, still within our ETH/USDC pair, an LP can borrow WBTC, sell it for ETH, and thereby end up longing ETH / shorting WBTC in one move.

Stable pairs

As noted earlier, JIT Liquidity makes EulerSwap especially potent on pairs whose prices barely move. In that context, LPs can reshape their AMM curve and raise the pool’s LTV, achieving liquidity concentration up to 50 × the capital deployed while keeping risk at reasonable levels.

Liquidity bootstrapping

EulerSwap can jump-start liquidity for a new token with minimal capital. A project team might create a USDC/XYZ pool, supply only the XYZ side, and let an existing USDC vault cover the counter-asset.

This halves the budget needed to launch the token while providing deeper liquidity. Bonus: it instantly spawns a lending market where investors can borrow XYZ against USDC collateral, unlocking complex financial strategies seldom available to freshly minted, low-liquidity tokens.

Conclusion

EulerSwap delivers a production-ready solution built on Euler v2 that narrows the gap between lending and spot trading. Via JIT Liquidity, it deepens markets by borrowing exactly what a swap needs, when it needs it. The protocol’s modular design makes it a go-to tool for sophisticated investors eager to optimise liquidity while tailoring risk.

With EulerSwap, Euler once again hits hard—rolling out an innovative, capital-efficient protocol that could quickly become the venue of choice for swap aggregators and traders executing sizable orders.