Euler is a modular lending protocol built around a vault-based architecture that allows any developer, institution, or risk manager to deploy customised lending markets in a permissionless way. Launched originally in 2021 and substantially rebuilt as Euler V2, it operates across Ethereum and a growing number of chains. Euler's design sits at the more flexible end of the DeFi lending spectrum — prioritising composability and configurability over the simplicity of a single shared liquidity pool.
Why Euler exists
The major DeFi lending protocols that preceded Euler were built on a shared-pool model: all lenders and borrowers of a given asset participate in the same liquidity pool, with a single set of risk parameters governing the entire market. This architecture offers simplicity and deep liquidity, but comes with structural constraints. Adding a new collateral asset requires governance approval and affects all users in the pool simultaneously. A problem with one collateral type — a depeg, an exploit, a sudden price drop — can create losses that spread across the entire protocol.
For builders who want to create specialised lending products, the shared-pool model is also limiting. There is no way to offer a lending market with custom interest rate logic, custom collateral rules, or compliance features layered on top, without building an entirely separate protocol from scratch.
Euler's premise is that lending infrastructure should be more like a toolkit than a single product. Rather than one shared pool with governance-managed parameters, Euler provides the building blocks for anyone to assemble isolated lending markets exactly as needed — with risk contained to each individual vault rather than socialised across the whole protocol. The target is not just DeFi-native users, but builders, institutions, and fintech companies that need configurable credit infrastructure.
How the protocol works
Euler V2's architecture consists of two core components that work together: a vault standard for creating isolated lending markets, and a connector layer that allows those vaults to interact safely.
Euler Vault Kit (EVK). The EVK is the building block for individual lending markets. Each vault holds a single underlying asset, enforces its own interest rate model, collateral acceptance rules, and risk parameters. Vaults are isolated by design: a problem in one vault cannot automatically spread to others. Any developer can deploy a vault for any asset without permission, making the market creation process entirely open. Euler Labs also curates a set of "core" vaults with conservative parameters for mainstream assets.
Ethereum Vault Connector (EVC). Isolated vaults are useful but limited on their own — a user would need to interact with each vault separately, and could not use collateral from one vault to borrow from another. The EVC solves this by acting as a coordination layer: it allows vaults to recognise each other as collateral sources, enabling cross-vault borrowing while still maintaining the underlying isolation. A user can deposit into a set of vaults and borrow against that combined collateral position, while each vault's risk accounting remains independent.
Vault clusters and curators. Individual vaults can be grouped into curated clusters — collections of vaults managed by a designated curator who takes responsibility for risk parameters, asset selection, and ongoing oversight within their cluster. This mirrors the model used by Morpho's curator layer: passive depositors choose a curator rather than evaluating every individual vault themselves. Curators earn a fee for providing this service.
EulerSwap. Beyond lending, Euler has launched a DEX component — EulerSwap — that provides token swapping directly within the Euler ecosystem. By integrating a DEX with lending infrastructure, Euler creates additional utility for capital already deposited in vaults and generates an additional source of protocol fee revenue.
FeeFlow. FeeFlow is the mechanism through which protocol revenue is converted into EUL token buybacks. A portion of the fees collected across Euler's vault network — the protocol's share after paying lenders and curators — is continuously used to purchase and remove EUL from circulation. This creates a direct link between protocol usage and EUL's circulating supply, similar in principle to Uniswap's fee switch or Hyperliquid's Assistance Fund.
How Euler makes money
Euler's fee structure has three layers, each going to a different recipient.
Lender interest. The majority of borrow interest paid by borrowers flows to the lenders in the corresponding vault — the same model as Aave or Morpho. This is not protocol revenue.
Curator fees. Curators who manage vault clusters charge a management or performance fee on the yield generated in their cluster. This fee goes to the curator rather than to the Euler protocol, compensating them for ongoing risk management. Curator fees are set independently for each cluster and are visible to depositors before they commit capital.
Protocol fees (FeeFlow). A portion of total interest collected across Euler's vault network is retained by the protocol itself — this is Euler's own revenue. These protocol fees are routed through FeeFlow, which converts them into EUL buybacks on an ongoing basis. The protocol fee rate is set at the vault level and varies by market.
Unlike Morpho, which currently retains zero protocol revenue, Euler is designed to capture a share of the economic activity flowing through its infrastructure from the outset. Whether the fee rate remains competitive enough to retain depositors and borrowers while still generating meaningful revenue for EUL holders is the central tension in Euler's economics.
Reading Euler's metrics
TVL. Euler's TVL reflects the capital deployed across its vault ecosystem — both core vaults managed by Euler Labs and third-party curated clusters. Because vaults are isolated, the aggregate TVL figure is the sum of independent markets rather than a single shared pool. This makes TVL somewhat less comparable to Aave or Morpho directly: the same dollar in Euler's system carries isolated risk rather than contributing to a shared liquidity pool.
The directional trend of TVL is nonetheless the clearest measure of whether Euler's modular model is attracting capital. A protocol at Euler's stage of development should show consistent TVL growth quarter-over-quarter as new curators deploy vaults and new chains onboard. Stagnant or declining TVL in this context suggests either that the model is not yet attracting builders or that competing protocols are offering better risk-adjusted returns to depositors.
Protocol revenue vs gross fees. The gap between gross fees (what borrowers pay) and protocol revenue (what Euler retains) reflects the combined take of lenders and curators. Euler retains a smaller share of gross fees than might be expected from a protocol of its complexity, because curators also take a cut. Tracking protocol revenue specifically — not just gross fees — gives the most accurate picture of what EUL token holders are economically backed by via FeeFlow.
FDV/TVL. With a small total token supply and a market cap close to FDV, Euler's FDV/TVL is a relatively clean valuation ratio — there is limited dilution gap to account for. A high FDV/TVL relative to peers signals that the market is pricing in significant future growth in TVL or revenue. A low ratio relative to peers may indicate that the market is discounting Euler for its smaller scale or earlier-stage competitive position.
Risk factors
Scale and liquidity depth. Euler operates at a significantly smaller TVL than established lending protocols. Smaller TVL means thinner liquidity in individual vaults, higher potential slippage for large liquidations, and less cushion against bad debt accumulation. Capital efficiency and borrower access improve as TVL grows — but at early-stage scale, the risk of meaningful bad debt relative to the vault's total deposits is higher than in deeper markets.
Curator quality and concentration. Euler's modular model delegates risk decisions to curators, who set collateral parameters and manage vault clusters. The quality of that judgment varies between curators and is not directly controlled by the Euler protocol. A poorly managed vault cluster can suffer losses that Euler's infrastructure cannot prevent. Additionally, if a small number of curators manage the majority of TVL, the departure or failure of any single curator represents concentrated risk for the protocol's aggregate deposit base.
Third-party and collateral contagion risk. Isolated vault architecture limits but does not eliminate contagion. If a collateral asset accepted within a vault experiences a price shock or exploit, that vault's depositors bear the resulting bad debt. In clustered vaults where multiple markets share collateral relationships through the EVC, contagion pathways can extend beyond a single vault — though they remain more contained than in a unified shared pool.
Smart contract complexity. Euler V2's EVK and EVC introduce a more complex smart contract surface than simpler lending protocols. The EVC's cross-vault coordination logic, in particular, creates interaction paths that are harder to reason about than isolated single-pool contracts. Higher complexity generally implies higher risk of edge cases that audits may not cover.
Competitive pressure at smaller scale. Euler competes for depositors and borrowers against more established protocols with deeper liquidity and longer track records. For risk-averse capital — particularly institutional — the safety premium associated with larger, more battle-tested protocols creates a meaningful barrier for a protocol at Euler's current scale.
How to monitor Euler without daily research
The key signals are TVL trend (is the modular model attracting capital?), protocol revenue through FeeFlow (what accrues to EUL holders?), and the expansion of curated vaults and chains as a measure of ecosystem breadth. TokenSignal tracks Euler's core metrics automatically — add EUL to your watchlist for a daily digest and alerts when meaningful changes occur. Free for up to 5 assets.
Related: What is TVL in DeFi? · Aave: Protocol Overview, Metrics & Fundamentals · Morpho: Protocol Overview, Metrics & Fundamentals