Introduction

DeFi lending markets are at a pivotal juncture. Historically dominated by giants like Aave and Compound, the landscape is beginning to shift towards a more flexible, adaptable, and user-centric model. This evolution is marked by the adoption of permissionless money markets built on top of an immutable base layer, with risk management through isolated pools being managed on top by specialized parties, diverging from traditional uniform and one-size-fits-all approaches.

Euler, which has been building and innovating in DeFi since 2020, has demonstrated that it can become a prominent player and innovate upon the original monolithic design of incumbents and established competitors like Aave and Compound. The initial deployment of Euler v1 demonstrated that there is a lot of room for improvement to take decentralized lending to the next level. After an unexpected setback and ~$200M exploit, Euler will introduce its v2 in the second quarter of 2024. This upcoming version, developed with insights from Euler v1, emphasizes a modular structure that is flexible across various elements, including governance and Oracle systems.

This approach allows for unprecedented customization, including the chaining of vaults to explore new opportunities in light of emerging strategies with Liquid Restaking Tokens (LRTs) and basis trades. It introduces a modular architecture with the Euler Vault Kit (EVK) for creating customizable lending markets and the Ethereum Vault Connector (EVC) to enhance interactions between ERC-4626 vaults and other smart contracts. This structure sets a new standard in DeFi lending, promising a platform where builders can innovate freely and securely while empowering users by accommodating their diverse risk preferences.