Unit of account

Introduction

Euler enables borrowing and lending of any ERC-20 token, which requires a standardised way to express asset values relative to one another. A unit of account (UoA) serves as a common reference currency, allowing the Euler protocol to standardise price comparisons, calculate collateral values, and determine borrowing and lending ratios across different credit vaults.

Collateral and loan valuation

When a user deposits collateral and borrows another asset, the protocol must assess whether the collateral is sufficient. Without a common unit of account, comparing different assets like ETH, DAI, and WBTC would be challenging. The UoA provides a standard measure of value, ensuring accurate comparisons and helping determine when a borrower’s position becomes undercollateralised and eligible for liquidation.

Flexible asset pricing

Most lending protocols impose a fixed unit of account, typically using USD or ETH. In contrast, Euler's modular design allows any asset to be selected as the UoA. This flexibility supports different pricing environments, enabling stablecoin-based lending markets to use USDC, BTC-backed borrowing markets to use WBTC, and traditional DeFi markets to continue using ETH. By allowing markets to define their own UoA, Euler enhances adaptability across various financial ecosystems.

Conclusion

The unit of account is crucial for maintaining a consistent pricing standard across asset valuation, risk management, and liquidations. By allowing any asset to serve as the UoA, Euler v2 introduces a flexible pricing system that can support a diverse range of lending and borrowing markets.