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Vault Types

Verified vault types are lists that classify vaults based on the characteristics they share. Verification is carried out by smart contracts called ‘perspectives’ and is designed to check that a vault, and all the vaults it is directly or indirectly exposed to via its collaterals, has certain characteristics.

Verified Types​

Escrow vaults hold deposits that are escrowed for use as collateral for taking out loans from other vaults. They do not earn their depositors interest because they do not allow borrowing. They are ungoverned.

Governed vaults hold deposits that can both be used as collateral and borrowed, earning depositors additional yield. A DAO, risk manager, or an individual manages these vaults, controlling risk, interest rates, loan-to-value, and other risk parameters. They are suited for passive lenders who trust the governor's management.

Ungoverned vaults have fixed parameters with no active governor to manage risk, making them suited to lenders who prefer to manage their own risk. They come in two types:

  • 0x ungoverned vaults have zero exposure to governance through their collaterals
  • nzx ungoverned vaults have non-zero exposure to governance because they may accept collateral with governance exposure

Earn vaults are a special class of governed vaults that aggregate passive lender assets that can be directed by the vault governor to flow into any underlying ERC4626 vault, including both ungoverned or governed Euler vaults, but also external vaults like sDAI. The vault governor manages risk/reward by altering flows into underlying vaults with different properties.

Unverified vaults have no distinguishing characteristics except that they were deployed using the main EVK vault factory smart contract. This offers minimal guarantees about their functionality. The factory class is intended for advanced users only.

Why are there many vault types?​

Vaults deployed using the Euler Vault Kit (EVK) are highly customisable. Not only do vaults themselves have many risk parameters that can be tuned by vault creators and governors, but they can also leverage the power of the Ethereum Vault Connector (EVC) to recognise deposits in any number of other vaults as collateral.

These features of Euler provide vault creators and end users with a lot of flexibility, but also potentially make it harder for users to understand the features and risks associated with the vaults they want to use. Risk, in particular, comes not just from the vault a user directly interacts with, but also emerges from the direct and indirect exposure a vault has to the other vaults it recognises as collateral. This is where verified vault types are designed to help users.

Ultimately there are many possible ways to classify vaults, and so any classification schema is always going to be artificial. Users always need to do their due diligence before choosing to use a vault, regardless of what type it is classified as. Verified vault types are not prescriptive about vault safety or anything else. However, they may be useful in helping users to quickly recognise vaults that share certain characteristics.

Of particular concern to users is likely the mode of risk management used to set risk/reward parameters on a vault. If a vault is governed, passive users know that they need to trust the vault governor to adjust vault parameters in a sensible way as the risk environment changes. They need to trust the governor to limit a vault’s exposure to other risky vaults. If a vault is ungoverned, users know that vault parameters, including its exposure to other vaults, cannot change in response to the changing economic environment. They know that they will therefore need to proactively manage their own risks.

There are trade-offs between the two approaches that have been discussed at length elsewhere. But either way, it is important for users to be able to distinguish between these two major classes of vaults and the risks associated with them. The verified vault types listed above are there to help users to better make this distinction.

However, if the verified vault types suggested by the user interface are found not to be useful, then users have two options. First, they can opt to toggle off the classifications suggested by the default user interface and then manually add the addresses of vaults that they wish to use. Alternatively, more sophisticated users can create their own perspective smart contract and define their own class of vaults (see here for inspiration). These perspectives and their associated lists of vaults can then be uploaded to the user interface under the connected wallet’s settings.