Vault Clusters

The credit vault is the building block of modular money markets on Euler. The EVK allows vault deployers to flexibly configure the behavior of individual vaults and also control vault-to-vault collateral relationships in a granular manner. Thanks to these affordances, EVK-built vault clusters can not only replicate popular money market setups such as Aave (monolithic lending) and Morpho (isolated lending) but also extend and improve them beyond their individual deficiencies.

A major consideration when designing an onchain money market is placing it on the axis between between capital efficiency (monolithic) and risk isolation (isolated). While both have their merits, lending protocols are often specialized and limited to one part of the spectrum. By contrast, Euler vault clusters can be be configured in any manner because collateral relationships are pairwise by default. In addition, settings that are often market-wide elsewhere, are configurable per vault on Euler.

Dampening Monolith Risks

Monolithic money markets are popular because they allow users to be very capital-efficient. However this comes with a big caveat: it turns up the risk of a systemic market-wide wipeout. To give one example, if an attacker maliciously inflates the price of an asset they become eligible to borrow all other assets, hurting all participants as a result.

Monolithic lending protocols often implement various mitigations to their inherent systemic risks such as collateral isolation mode, supply and borrow caps, high-correlation borrowing modes and others. Ultimately they remain beholden to the inflexibility of the monolith, and are often forced to manage risks by modularizing aspects of the protocol. By contrast, money markets built with the Euler Vault Kit are highly modular by design. This allows a monolith-like lending market to be built with a toolkit of precise risk management functions that let governors manage market conditions effectively.