Euler (EUL)

From a commissioned Messari report (2-2023):

"Euler Finance (pronounced “Oiler”) is a permissionless lending protocol built on Ethereum, empowering users to lend and borrow ERC-20 tokens."

Basics

• Started in / Announced on:
• Mainnet release: 14-12-2021, guarded mainnet launch
• Based in:
• From DeFi Prime (21-12-2020):

"A decentralized lending protocol centered around reactive interest rate models."

History

• From Dose of DeFi (30-5-2024):

"Launched its v1 in 2022 and generated over $200 million in open interest before a hack drained nearly all protocol funds (although they were later returned). Now, it’s preparing to launch its v2 and reenter a maturing modular lending ecosystem as a major player."

Audits & Exploits

• Bug bounty program can be found [insert here].

Bugs/Exploits

• From Blockthreat (22-3-2023):

"The exploit transaction was initially front-run by an MEV bot, but the hard-coded address only benefitted the attacker. Things got really wild when the attacker first sent 100 ETH to a random on-chain beggar and later sent 100 ETH to the Ronin Bridge exploiter address which in turn replied with an encrypted message which some suspect was to phish but more likely to just thank or even recruit the bad actor, Cuckoo’s Egg style. Euler attacker has since returned 3000 ETH back to Euler and continues communicating with Euler to send back what is not theirs to keep."

• From Decrypt (16-3-2023):

"If 90% of the funds are not returned within 24 hours, tomorrow we will launch a $1M reward for information that leads to your arrest and the return of all funds," the publicly encoded message from Euler Finance said. The reward was publicly announced by the Euler Foundation today."

• From Decrypt (13-3-2023):

"Suffered an exploit of approximately $196.9 million, the attacker used a series of six different flash loans to leverage the attack. The attacker nabbed $8.7 million in DAI, $18.5 million in Wrapped Bitcoin (WBTC), a whopping $135.8 million in Staked Ethereum (stETH), and another $33.8 million in Circle's USD stablecoin USDC."

Governance

DAO

• Governance by EUL token holders started on 23-6-2022.
• Lemniscap turned out to have "$6.3M 682k EUL, up from 292k" with which they "determines the majority of Euler proposals. 8/10 last proposals they were >50% of votes: 1 no vote & 1 was 48%"

Token

Launch

• EUL tokens could be claimed in 6-2022, starting Euler DAO governance.

Coin Distribution

• Lemniscap turned out to have "$6.3M 682k EUL, up from 292k" with which they "determines the majority of Euler proposals. 8/10 last proposals they were >50% of votes: 1 no vote & 1 was 48%"

Technology

• Whitepaper can be found [insert here].
• Code can be viewed [insert here].
• Built on: Ethereum. Will launch on Base (28-2-2023).

How it works

• From Dose of DeFi (30-5-2024):

"Euler v2 has two key components. One, the Euler Vault Kit (EVK), which is a framework for creation of ERC4626 compatible vaults with additional borrowing functionality, enabling them to serve as passive lending pools, and two, the Ethereum Vault Connector (EVC), which is an EVM primitive that primarily enables multi-vault collateralisation, i.e., multiple vaults can use collateral made available by one vault. V2 has a planned Q2/Q3 launch."

• From a commissioned Messari report (2-2023):

"Euler Finance is governed by EulerDAO, which uses EUL (ERC-20 token) to govern the protocol. Euler differentiates itself from other lending protocols in a number of ways, including permissionless token listing with a Uni V3 TWAP oracle, two-sided risk-adjusted borrowing capacities, improved liquidation efficiency through gradual Dutch auctions, and more. Euler introduces a risk framework for classifying assets into three tiers — isolation tier, cross tier, collateral tier — which dictate whether an asset can be used as collateral or as a lending and borrowing asset.

Euler has gauges where tokenholders can vote to allocate EUL rewards to borrowers of various assets. These rewards reduce the borrowing cost on loans, leading the natural interest rate (which ignores the reward from incentives) to trade a positive spread to peers (using Aave as an example).

Liquidations on Euler utilize a unique mechanism. They create a gradual Dutch auction for liquidators to bid for collateral assets instead of simply giving them at a fixed discount to the fastest or highest gas-paying liquidator. The liquidation discount is capped at 20%. This approach results in cheaper liquidations for larger borrowers. In the last nine months of 2022, liquidations over $10,000 were executed at an average discount rate of 2.77%, while liquidations smaller than $10,000 but over $100 were liquidated at a 7.54% average discount. The protocol charges the liquidator a 2% liquidation surcharge, which is included in the discount rate, or amount returned to the borrower who is being liquidated. Euler liquidators are accepting a mere 0.77% return on large liquidations. Given many protocols are charging closer to 5% for all liquidations, the auction-based metric gives a first look at market-based liquidation pricing at different loan sizes."

Roadmap

• Can be found [Insert link here].

Revenue

• From a commissioned Messari report (2-2023):

"In the last nine months of 2022, Euler averaged $8,000 per day in protocol revenues (also serving as reserves). The protocol earns fees in the form of reserves from both a share of interest and payments and a share of liquidations. About 14% of reserves generated in 2022 were from liquidations, with the three largest earning days all having over $2 million of liquidations. Euler collects reserves from liquidations denominated in the borrowed asset, thereby creating a stronger buffer against future liquidations of borrows in that asset."

Keep in mind that Euler does use EUL incentives.

Usage

• Per DeFi Llama, the project's total value locked (TVL), was $237.9 million prior to the attack (13-3-2023).
• From a commissioned Messari report (2-2023):

"The 2022 bear market had little impact on Euler’s usage metrics. Pool count, average daily active users, unique users, daily number of borrows, and daily number of deposits all increased consistently over the year. The protocol went live on Ethereum Mainnet in December 2021. Although these metrics could be reflective of Euler only being live on Ethereum Mainnet since December 2021, they still show that Euler grew consistently over a tumultuous year.

Using value deposited in Compound, Aave, and Euler as a proxy, Euler launched in December 2021 and entered the year with 0.1% market share. In November 2022, it reached a peak of 6.8% share, closing the year at 4.3%."

• From Our Network (11-11-2022):

"Euler's utilization has remained extremely high throughout its life. Despite the recent crisis, confidence in Euler has hit a new high. Utilization consistently hits between 80 - 100% versus Aave’s ~40% or Compound’s 44%. 80%+ utilization incentivizes more lenders and borrowers, making Euler's revenue versus incentives unbeaten at a deficit of $759k, versus leaders at a deficit of $1.3m despite a comparatively minuscule TVL, meaning a smaller base for fees."

Pros and Cons

Cons

• Had investment from Alameda Research/FTX, which came out (11-11-2022) during the FTX crash. This could mean fall-out risk.

Team, Funding, Partners

Team

• Full team can be found [here].

Funding

• Lemniscap turned out to have "$6.3M 682k EUL, up from 292k" with which they "determines the majority of Euler proposals. 8/10 last proposals they were >50% of votes: 1 no vote & 1 was 48%"
• FTX turned out to have invested $5.6M in exchange for tokens (8-12-2022).
• Matter Labs; according to Matter Labs, the founders and leadership of a bunch of DeFi projects, among which this project, joined in on the $50m raise for zkSync (8-11-2021).
• From EthHub (31-8-2021):

"Euler Raises $8 Million. The Series A round was led by Paradigm with participation from Lemniscap and angels. like Anthony Sassano, Ryan Sean Adams, David Hoffman, Kain Warwick, Hasu, Danilo Carlucci, Supriyo Roy, and Xin Wang."

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