Glossary
Core Protocol Components
| Term | Definition |
|---|---|
| EVC | The Ethereum Vault Connector (EVC) is an open-source interoperability layer within the Euler protocol that connects credit vaults, enabling their use as collateral for one another. It allows users to efficiently batch and execute multiple operations in a single transaction, enhancing flexibility and efficiency in decentralized finance (DeFi) operations. |
| EVK | The Euler Vault Kit (EVK) is a framework designed to facilitate the creation of credit vaults—specialized ERC-4626 compliant vaults that incorporate borrowing functionalities. Unlike traditional ERC-4626 vaults that actively invest deposited funds to generate yield, credit vaults function as passive lending pools, allowing users to earn interest by lending out their deposited assets. |
| EPO | The Euler Price Oracle (EPO) is a composable on-chain pricing system within the Euler protocol, designed to provide accurate and flexible asset price data. It utilizes a modular library of oracle adapters and components that implement the IPriceOracle interface, facilitating seamless integration with various external pricing sources. |
| IRM | Interest Rate Model (IRM) is a contract that determines the borrow and supply interest rates for a vault based on its utilization. IRMs can be customized per vault to implement different rate calculation strategies. |
| Hook Target | A contract that implements custom logic to be executed before specific actions in a vault's transaction lifecycle. Hook Targets can be used for access control, security checks, or other custom behaviors. |
Financial Metrics
| Term | Definition |
|---|---|
| Health score | The health of an account is a numerical representation of how safe a user's debt position is relative to its collateral value. It helps determine how close an account is to liquidation. If a user's health drops below 1, their account can be liquidated. Higher health means lower risk of liquidation. Health also plays a role in determining the liquidation bonus a liquidator receives. As health falls below 1 due to price changes, the bonus a liquidator gets for liquidation grows. |
| TTL | Time to Liquidation. How long it would take for your account to be liquidated if prices stayed the same, but you kept earning or paying interest at the current rates. |
| NAV | Net Asset Value (NAV) represents the total value of a user's account, measured as the total value of their deposits minus the total value of their debts. |
| APY | Annual Percentage Yield (APY) represents the annualised return earned on deposits or the interest paid on borrowed assets, accounting for compound interest. It reflects the effective yield on an asset over a year, assuming continuous reinvestment of earnings. |
| ROE | Return on Equity (ROE) measures the annualised profitability of a borrow position relative to the user's equity in Euler. It indicates the percentage return a user earns on their deposited assets after accounting for borrowing costs over the course of a year. Equity can be defined one of two ways depending on whether a user has an ordinary borrow or a multiplied position. |
| LTV | Loan-to-Value (LTV) ratio represents the maximum amount that can be borrowed against a specific collateral asset. For example, an LTV of 0.8 means you can borrow up to 80% of your collateral's value. |
| Utilization | The ratio of borrowed assets to total supplied assets in a vault. Higher utilization typically leads to higher interest rates. |
Risk Management
| Term | Definition |
|---|---|
| Liquidation | The process of forcibly closing a user's position when their health score falls below 1. Liquidators can purchase the collateral at a discount, helping to maintain the protocol's solvency. |
| Liquidation Bonus | The discount at which liquidators can purchase collateral during a liquidation. The bonus increases as the health score decreases. |
| Isolated Risk | A risk management approach where each vault or market operates independently, meaning the risks associated with one vault ro market do not directly impact others. |
Technical Terms
| Term | Definition |
|---|---|
| ERC-4626 | A tokenized vault standard that provides a unified interface for yield-bearing vaults. Euler V2 vaults are ERC-4626 compliant, making them compatible with other DeFi protocols. |
| Rehypothecation | The practice of using the same collateral for multiple purposes. In Euler, deposited assets can be used as collateral while still earning yield. |
| Multicall | A feature of the EVC that allows users to batch multiple operations into a single transaction, reducing gas costs and improving efficiency. |
| Permit2 | A mechanism that allows users to approve token transfers without requiring a separate transaction, improving user experience and reducing gas costs. |
Protocol Features
| Term | Definition |
|---|---|
| Non-borrowable Vault | A vault where deposited assets can only be used as collateral and cannot be borrowed. This feature allows for more flexible risk management. |
| Cross-collateralization | The ability to use assets from one vault as collateral to borrow from another vault, enabled by the EVC. |
| Sub-accounts | Virtual accounts within the EVC that allow users to manage multiple positions with different risk parameters. |
| Operator | A feature that allows users to delegate specific permissions to other addresses, enabling automated strategies and management. |