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Vaults

Vaults are the fundamental building blocks of the Euler protocol, serving as the primitive unit for all lending and borrowing activities. In Euler, there are two main types of vaults: Euler Vault Kit (EVK) vaults and Euler Earn vaults, each serving distinct purposes while sharing common underlying principles.

EVK Vaults

EVK (Euler Vault Kit) vaults are extended ERC-4626 vaults that function as passive lending pools. Unlike standard ERC-4626 vaults that generate yield through active investment strategies, EVK vaults earn yield by lending assets to borrowers. These vaults accept ERC-20 token deposits and enable users to borrow against their collateral.

Note: While vaults can be interacted with directly, the recommended approach is to use the Ethereum Vault Connector (EVC) as the primary entry point. The EVC provides batching, sub-accounts, simulations, and other advanced features that make interactions more efficient and flexible.

The architecture of an EVK vault consists of several key components working together:

  • Underlying Asset: The ERC-20 token held by the vault, with each vault holding exactly one type of asset
  • EVault: The primary entry point contract implementing common vault logic:
    • Tracks deposits and borrows
    • Validates position health
    • Permits liquidations
    • Uses static modules for code organization
  • Price Oracle: Interfaces with external pricing systems to compute real-time values of collaterals and liabilities
  • IRM (Interest Rate Model): Determines borrowing rates to incentivize or discourage borrowing based on market conditions
  • ProtocolConfig: Global protocol-level configuration controlling fee destinations and splits
  • DToken: A read-only ERC-20 interface for debt amounts, making debt modifications visible in block explorers and trackable by tax-accounting software

Governance and Risk Management​

EVK vaults can be either governed or finalized (ungoverned), offering different approaches to risk management:

Governed vaults are actively managed by a governor or risk curator who can adjust parameters like accepted collateral, borrowing limits, and pricing models as market conditions evolve. This approach provides a more passive lending experience but requires trust in the curator's risk management capabilities.

Ungoverned vaults have governance permanently revoked, maintaining fixed parameters regardless of changing risk conditions. These vaults appeal to users who prefer self-managed risk without reliance on third parties. Market forces ultimately determine which vault configurations attract liquidity and remain viable.

Earn Vaults

Earn vaults are designed for passive yield seekers who want exposure to the Euler ecosystem without managing individual lending and borrowing positions. Built on the ERC-4626 standard, these vaults act as yield aggregators, deploying user deposits across multiple strategies selected and managed by risk curators.

Risk curators play a crucial role in Earn vaults, responsible for rebalancing strategies, managing liquidity, and assessing risk profiles. This structure allows users to benefit from Euler's sophisticated lending infrastructure while delegating the technical complexities of yield optimization to professional risk managers.

Key Features​

Earn vaults offer several advantages for passive yield seekers. They provide simplicity through a single deposit interface, diversification across multiple yield-generating strategies, and non-custodial security where risk curators can rebalance allocations but cannot withdraw user funds. The continuous rebalancing of funds across the DeFi ecosystem ensures capital efficiency and optimal yield generation.

Vault Composition

One of the most powerful aspects of Euler's vault system is the ability to compose vaults together. By linking EVK vaults as collateral for one another, creators can design various forms of markets. These can range from simple isolated collateral-debt pairs to complex, feature-rich, cross-collateralized clusters.

Risk curators and asset managers can then layer Earn vaults on top of EVK vaults to generate risk-managed yield for passive yield-seekers. This composability enables the creation of sophisticated financial products while maintaining the security and efficiency of the underlying protocol.

For more detailed information about the implementation and technical specifications, please refer to the Euler Vault Kit repository.