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Introduction

What is Euler V2?

Euler V2 represents a significant evolution of the Euler protocol, redesigned from the ground up with modularity, security, and capital efficiency at its core. V2 introduces a novel architecture centered around the Euler Vault Kit (EVK). This kit allows anyone to deploy isolated, customizable lending and borrowing markets for virtually any ERC20 token, moving away from the monolithic pool structure.

Key characteristics of Euler V2 include:

  • Permissionless Vault Creation: Anyone can create a lending vault for an asset using the EVK, fostering a diverse ecosystem of isolated risk pools. Some vaults may be configured as non-borrowable (collateral-only).
  • Modularity: The protocol is built with distinct, replaceable components (Vaults, Oracles, Interest Rate Models, Hook Targets) allowing for greater flexibility in configuration.
  • Isolated Risk: Each market, being a collection of vaults, operates independently, meaning the risks associated with one market do not directly impact others, enhancing overall protocol resilience.
  • Enhanced Capital Efficiency: Features like sophisticated oracle integrations and customizable Interest Rate Models (IRMs) aim to optimize capital utilization within each vault.
  • Developer Focus: The EVK and accompanying tools like the Ethereum Vault Connector (EVC) are designed to empower developers to build innovative financial products and strategies on top of Euler.

Key Concepts

Core Components​

  • Euler Vault Kit (EVK): The foundational toolkit comprising smart contracts that enable the creation and management of individual lending/borrowing vaults. Each vault is essentially an ERC4626-compliant tokenized debt market.
  • Vaults: Isolated lending pools for a specific underlying asset. Users deposit assets to earn yield (generated from borrows). These deposits can also serve as collateral, enabling the user to borrow assets from other vaults within the Euler V2 ecosystem. Some vaults are designated as non-borrowable, meaning assets deposited can only be used as collateral and cannot be borrowed.

Periphery​

  • Oracles: Price feed contracts responsible for providing secure and reliable price data for assets within a vault, crucial for collateral valuation and liquidation checks. Euler V2 supports a wide range of oracle types (Chainlink, Pyth, Redstone, Chronicle, etc.) and allows custom configurations per vault.
  • Interest Rate Models (IRMs): Contracts that determine the borrow and supply interest rates for a vault based on its utilization (ratio of borrowed assets to total supplied assets). IRMs can be customized per vault.

Advanced Features​

  • Hook Targets: Optional contracts that can be attached to vaults to execute custom logic before specific actions occur in the transaction lifecycle (e.g., before deposit, before borrow, before liquidation). Hooks call into designated Hook Target contracts (like HookTargetAccessControl or HookTargetAccessControlKeyring), which implement the specific logic (e.g., access control, security checks). This provides significant flexibility for customizing vault behavior.
  • Ethereum Vault Connector (EVC): A core contract acting as an alternate entry point for interacting with EVK vaults. It is essentially a sophisticated multicall contract with built-in authentication and authorization features. The EVC mediates interactions between vaults, enabling using collateral in one vault to borrow from another. It handles authentication, allowing vaults to trust calls originating from the EVC. Key features include batching calls (atomic execution, deferred checks), permissions delegation to operator contracts, sub-accounts (virtual accounts), and permit-based execution (EIP712).
  • Controller (EVC Context): When a user borrows from a vault via the EVC, they designate that vault (or another contract) as a Controller for their EVC account. This grants the Controller authority over the user's enabled collateral set within the EVC, allowing it to enforce the borrowing vault's rules (e.g., prevent collateral withdrawal, seize collateral via controlCollateral during liquidation).

Risk Management​

  • Risk Management: V2 employs isolated markets, vault-to-vault loan-to-value factors, and liquidation mechanisms to manage risk. The configuration of individual vaults (which other vaults are accepted as collateral, LTVs, IRMs, oracle choice, attached Hook Targets) is key to its risk profile.

Euler V2 vs V1

While sharing the goal of efficient lending and borrowing, Euler V2 differs significantly from earlier versions:

  • Architecture: Earlier versions had a single, monolithic pool for all assets with cross-collateralization. V2 uses isolated, permissionlessly deployable vaults via the EVK.
  • Risk: Earlier systemic risk is replaced in V2 by risk isolated to individual markets.
  • Asset Listing: Governance-managed tiered listings are replaced in V2 by permissionless vault creation for any ERC20, with risk parameters set by the vault creator.
  • Oracles: V2 introduces a more robust and flexible oracle framework supporting various providers and configurations per vault.
  • Modularity: V2 is highly modular, allowing components like IRMs, Oracles, and Hook Targets to be tailored per market, offering significant customization.

Architecture Diagram

Description​

The Euler V2 architecture starts with the user interacting either directly with an EVK Vault or, more commonly, through the Ethereum Vault Connector (EVC), which acts as a secure alternate entry point and multicall facility. The EVC routes actions to the appropriate EVK Vault(s), handling authentication and potentially batching operations. When borrowing via the EVC, a Controller contract gains authority over the user's enabled collateral set to enforce loan terms across vaults. Each EVK Vault interacts with dedicated Oracle and Interest Rate Model (IRM) contracts (not shown on the diagram). Optional Hooks can call into specific Hook Target contracts to modify vault behavior before actions occur (not shown on the diagram). This modular design ensures isolated risk per vault, while the EVC enables complex cross-vault interactions, authentication, and rule enforcement.

Getting Started

Ready to explore Euler V2? Here are some next steps:

  1. Read the Lite Paper for a detailed technical overview
  2. Check out the Concepts section to understand key terms and mechanisms
  3. Visit the User Guide for practical usage instructions
  4. For developers, explore the Developer Guide to start building
  5. For risk curators, explore the Creator Tools to start creating
  6. Join our Discord to connect with the community