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EulerSwap: A Capital-Efficient AMM

Overview

EulerSwap is Euler's decentralized exchange (DEX) built on top of Euler V2. It introduces an automated market maker (AMM) design where liquidity is directly integrated with Euler’s vaults. This unified approach allows users to earn swap fees and lending yield on the same assets, while enabling advanced strategies like leverage and dynamic hedging.

Unlike traditional AMMs, EulerSwap doesn’t lock funds in a standalone pool contract; instead, an LP’s funds remain in their Euler position and continue accruing interest and rewards. By bringing together a DEX with lending, EulerSwap aims to maximize capital efficiency for users, offering deeper liquidity and more flexibility. It is also designed to be compatible with Uniswap v4 hooks, meaning EulerSwap pools can plug into Uniswap’s routing/aggregator ecosystem for broad accessibility.

Key Features and Advantages of EulerSwap

EulerSwap introduces several key advantages that make it attractive to LPs, token projects, and traders:

Dual Yield (Swap Fees + Lending Interest)​

Unlike normal AMMs where LPs only earn trading fees, EulerSwap LPs continue earning lending interest and protocol rewards on deposited assets in addition to swap fees.

Capital Efficiency via Rehypothecation​

Liquidity isn’t siloed. Assets supplied to EulerSwap remain in your Euler position, meaning a single deposit can serve multiple purposes. This rehypothecation (re-using collateral) leads to capital efficiency. Just-in-time (JIT) liquidity further amplifies this efficiency, allowing deep liquidity with a fraction of the capital by borrowing on demand.

Deep Effective Liquidity (Up to 50×)​

Through dynamic borrowing, EulerSwap can simulate liquidity depths that are orders of magnitude larger than the LP’s net deposit. In stablecoin pools or tightly pegged assets, where the protocol can safely leverage up to 50x higher liquidity by borrowing up to the max LTV. This deep liquidity leads to low slippage trading, improving trader experience and attracting volume.

Built-In Leverage and Hedging​

EulerSwap gives sophisticated tools to LPs to enhance or protect their positions. LPs can borrow additional assets from Euler to leverage their LP position and earn more fees on a larger pool (essentially taking on a leveraged LP stance). Conversely, they can borrow one side of the pair to hedge impermanent loss, maintaining a balanced exposure (delta-neutral strategy) while still earning fees and interest. This flexibility to manage exposure is something traditional AMMs don’t natively offer – normally an LP must accept the full market risk of the LP position. EulerSwap enables more professional market-making strategies on-chain, where you can treat your LP position almost like a margin position – adjusting leverage or hedges as market conditions change.

Customizable Curves & Fees​

EulerSwap uses a customizable formula that serves full-range liquidity while allowing different levels of concentration around an equilibrium price. At low concentration levels, EulerSwap behaves like a traditional constant-product AMM. As concentration goes up, liquidity is increasingly concentrated around the equilibrium price, offering lower price impact similar to Stableswap. Fees are earned on the entire swap volume, including borrowed liquidity. This gives users fine-grained control to minimize arbitrage losses and maximize fee earnings.

Single-LP Management​

Each pool is controlled by one LP account by design. The LP is in control of all pool parameters, and can add or remove liquidity, rebalance, or update their strategy as they wish. This is a big advantage for treasury managers and protocol-owned liquidity: you maintain full autonomy over your liquidity.

For example, if market conditions change, you could withdraw funds or adjust parameters to avoid losses – something not possible if your liquidity was combined in a public pool. This “curated liquidity” model also eliminates the risk of other LPs diluting your fees or introducing toxic liquidity. It aligns incentives for market makers to manage their own pool parameters and provide liquidity in a sustainable fashion, while managing risks.

Risk Management via Vault Mechanisms​

EulerSwap brings in Euler’s robust risk controls. Each vault has configurable LTV limits and is subject to Euler’s liquidation framework. Risk curators manage the risk parameters of the Euler vaults which provide lending liquidity to EulerSwap pools.

While liquidation risk is something LPs must mind (especially if using high leverage or in volatile markets), it also means there’s an automated safety net — if an LP’s position becomes too under-collateralized, liquidators will step in to restore solvency. Traditional AMMs can lose a large portion to impermanent loss without experiencing liquidation. In EulerSwap, the position health factor acts as a real-time risk gauge, providing transparency. An EulerSwap which uses JIT liquidity combines features and risks of both a borrow position and DEX position.

Ecosystem Integration​

EulerSwap is built to integrate into the DeFi stack. It can be accessed through Euler’s UI or via Uniswap-compatible interfaces thanks to the Uniswap v4 hook compatibility. This means aggregators and wallets can route trades through EulerSwap pools just like they would through Uniswap, tapping its liquidity without needing a custom integration. All contracts are open source and have undergone multiple audits (five separate security firms reviewed EulerSwap prior to launch). For developers and partners, EulerSwap offers both cutting-edge functionality and confidence in security, making it a compelling platform to build on or integrate with.