Euler has resurged from the lows of its hack in 2023 to create Defi’s most composable, modular liquidity layer.

There are many designs for money markets in Defi, however they can largely be grouped into monolithic (e.g. Aave) and Isolated (e.g. Morpho). Euler introduces Modular money markets - flexible vaults infrastructure enabling fully composable markets and strategies.

Monolithic money markets are extremely capital efficient, pooling collateral from all users together to enable deep liquidity and competitive borrowing rates. However, this means that all TVL is potentially at risk, thus governance is extremely involved, restricting asset selection and setting very conservative risk parameters (Collaterisation Ratio, Loan To Value, etc).

On the other hand, isolated money markets provide flexible asset creation, however fragment liquidity, reducing capital efficiency and liquidity depth. For Example, Morpho has listed many assets like Pendle PT’s, however the USDC collateral provided to these markets is fragmented, resulting in low liquidity and high borrowing rates.

Monolithic and Isolated money markets both have advantages and disadvantages, meaning that users are required to make constant compromises when utilising each. There is already an influx of new retail, institutional, fintech and tradfi participants seeking to leverage blockchains for yield, however no existing products can be customised and adjusted to cater to all of their differing needs. This is where Euler’s modular design shines.

Euler reimagines lending markets by breaking money markets down into simple core components that can be composed on and customised to cater to all existing and future user profiles, and their respective risk appetites.

At it’s core Euler leverages EVK (Euler Vault Kit), a highly flexible ERC-4626 standard vault based system allowing for permissionless vault creation + deployment and EVC (Ethereum Vault Connector) to connect vaults to one another.

• ERC-4626 - Euler vaults are adhere to Ethereum’s vault standard ensuring a simple and seamless developer experience

• EVK (Euler Vault Kit) - simplifies creating, customising and deploying Euler vaults. Enables curators and developers to easily define risk parameters (LTV, custom interest rates, etc)

• EVC (Ethereum Vault Connecter) - Router that allows vaults to communicate, enabling pooled risk, shared collateral, and strategy composition.

All existing lending market functionality can be replicated by by composing on each these 3 core components. For example, an Euler vault can be launched as an isolated lending market like Morpho, or many vaults can communicate with one another via EVC to replicate Aave’s monolithic design.

Composability in Defi took a backseat over the last 1-2 years as Ce-Defi protocols like Hyperliquid were able to provide UX’s that Defi could not compete with. Composability is back, with existing primitives being reimagined to enable new novel use cases. Euler is positioning itself as the liquidity layer to support all of Defi’s credit use cases.

In the future, Euler will have many new primitives hosted on top of it - Euler built the first (Euler Swap) themselves, to showcase the power of unified liquidity layers. Euler Swap (beta launched in June 2025) is a DEX built on top of Euler’s vaults that turn idle lending liquidity into productive capital by earning swap fees, and still be used as collateral within Euler via EVC.

For example, if a user wants to swap 100 USDC for 100 USDT, a Euler vault might supply 100 USDC as collateral, and borrow 100 USDT which is provided to the user. In essence, Euler Swap enables the borrowing of output tokens by using input tokens as collateral while a swap is in flight. This JIT liquidity is extremely efficient, enabling up to 50x capital efficiency - the most of any AMM in the industry (Fluid is next highest with 39x). The efficiency of Euler Swap is only possible due to the ability to leverage in-protocol (i.e. borrow assets against your LP and re-LP).

Example 1 - Composability Illustrated

Vaults are completely composable, enabling developers to tap into liquidity from elsewhere in the Euler Liquidity Layer. E.g. The ETH/USDC vault resembles an isolated market on Morpho, which can then be used to provide liquidity to other vaults.

Example 2 - Monolithic Markets

Composability can be leveraged to create monolithic market structures. E.g. ETH, BTC and USDT vaults can be used as collateral to borrow USDC - this resembles something like Aave or even MakerDAO.

Example 3 - Primitives Reimagined: Euler Swap

Composability has the potential to reimagine how existing primitives work. E.g. Euler Swap enables a spot market to be built on top of the deep liquidity within Euler’s Liquidity Layer.

Michael Bentley, Euler v2’s founder, is a Defi visionary. Euler v2’s core concepts and most innovative ideas (e.g. Modular Lending Vaults, Isolated Markets, EulerSwap) were being discussed in 2021, right when disaster struck. Euler was hacked for over $200m. Michael and core team members stuck together, first working to recover all lost funds and then rebuilding with a security focus. Now, Euler v2 is one of the most audited Defi protocols with millions of dollars invested into security, over 45 audits completed and a million dollar bug bounty program.

Not only has this team continued innovating in Defi, the resurgence to $1.2B TVL is extremely impressive.

Euler’s TVL has been growing quickly since the launch of Euler v2, currently sitting at ~1.2B, while it’s FDV has only 3x’d in the same period.

Borrowers love Euler, with consistently high utilisation rates (51%) compared to competitors (Morpho 35%, Fluid 44%). This also gives Euler an extremely attractive FDV/TVL ratio at 0.13x vs Morpho at 0.21x and Fluid at 0.19x.

Users, fees and TVL thus fees, have been growing steadily with over $2B in TVL and 1.5M in total fees in ~6 month period.

The Euler Swap beta period ran for roughly 2 weeks, and facilitated >$1B in trading volume on very small TVL. Although this is a very small sample size, early signs of huge potential are there.

• Airdrop and points farmers already prefer Euler for leveraging exposure due to low execution fees compared to other looping apps like Contango

• Euler enables permissionless long tail asset markets, where deposited collateral can still be used within Euler ecosystem via EVC

• Euler’s Liquidity Layer will host a plethora of new Defi primitives and paradigms like Spot Trading, Perpetuals, Delta Hedged LP Vaults, etc.

• Curator managed vaults provides investors with confidence when depositing

• Deposits will contine to earn even higher boosted yields as more protocols are built using EVC - e.g. via Euler Swap

• Institutional products with tailored risk parameters and functionality will allow users to deploy capital with confidence

• Customised vault products which fit their investment appetite, e.g. fixed interest rate borrowing

• Stable Swap Dominance: Highly capital efficiency protocols like Fluid have already flipped Curve in daily volumes. As Euler Swap is even more capital efficient, it should take large market share - although there are early signs as seen in the Euler Swap metrics above, this is still TBD since Euler Swap is still in beta.

• By aligning with Uniswap and building on top of Uni v4 hooks, Euler Swap will receive considerable Uniswap order flow (p.s. Euler is also the top project on Unichain in terms of fees and TVL).

With modular vaults, plug and play liquidity layers, and a composability first design, Euler is not just a better lending protocol, it’s a credit operating system. The DeFi ecosystem has lacked a native infrastructure layer that can adapt to the needs of DAOs, institutions, and sophisticated users. Euler is now poised to fill that role.