New DeFi Gameplay | Understand the Permissionless Lending Protocol Euler Led by Paradigm in One Article

Written by: Overnight Porridge, 8BTC

On August 26, the decentralized lending protocol project Euler announced the completion of an $8 million Series A funding round led by Paradigm, with other investors including Lemniscap, Anthony Sassano, Bankless co-founders Ryan Sean Adams & David Hoffman, Synthetix founder Kain Warwick, and Hasu.

Unlike Aave or Compound, Euler is permissionless, meaning anyone can list lending assets on the Euler platform.

This sounds like a cool idea, but while it brings significant demand to Euler, it also introduces substantial risks. Many believe that providing a lending platform for the most selfish individuals in the crypto space (i.e., countless scammers and worthless altcoin peddlers) may not be a good idea.

In response, Euler co-founder Michael Bentley explained that Euler will not prohibit any tokens from accessing the platform, but it will deploy a layered system, meaning that risky or suspicious crypto assets will be isolated. This means that if a token implodes for some reason, its collapse will not jeopardize the remaining funds locked on the platform.

The process of isolating certain tokens will be executed by Euler's upcoming native token, which will provide the same governance functions as the tokens issued by Compound and Aave (according to official news, Euler's governance token will be distributed to participants in the protocol after its launch).

To calculate whether loans are over-collateralized, Euler needs to monitor the value of user assets. Compound, Maker, and Aave use various systems to obtain price data from off-chain sources and transmit it on-chain, but this method is not suitable for Euler's purposes because centralized intervention is required every time a new loan market needs to be created.

Therefore, Euler relies on the decentralized time-weighted average price (TWAP) oracle of Uniswap v3 to assess user solvency.

Commenting on the project's vision, Paradigm investment partner Charlie Noyes stated:

"The Euler team is creating something to meet this demand in a novel and scalable way, and we are excited to support this development."

In Hasu's view, Euler is a lending market created from scratch in 2021 without any technical/architectural debt, which certainly proves its innovative capability. However, on the other hand, the more innovations Euler introduces, the greater the likelihood of new problems arising.

For example, according to official descriptions, Euler uses a rate model supported by control theory to minimize governance and aims to maximize capital efficiency in borrowing costs.

Additionally, Euler employs an anti-MEV liquidation mechanism and allows users to reclaim their collateral from borrowers to limit trading risks, shorting opportunities, and governance manipulation. For more features of Euler, we can refer to this article: https://docs.euler.finance/getting-started/white-paper#decentralised-price-oracles

To check for potential vulnerabilities, Euler has chosen Certora, Halborn, Solidified, and ZK Labs as its auditing firms, and the relevant reports can be found here: (1) and (2‌).

However, I would like to remind readers that many DeFi projects have undergone audits in the past but still faced hacking incidents, indicating that these measures may not be sufficient to guarantee the security of the Euler protocol. Therefore, if you decide to try using the Euler protocol, it is advisable to participate with only a small amount of tokens.

By the way, according to official statements, Euler will launch on the Ethereum mainnet by the end of the year.