Use the navigation bar on the left side to find guides for all the primary actions and functions on the Euler dApp.

Most of the functions and actions can be accessed through the Quick Action menu in the top navigation bar on the platform UI, while several actions will appear as buttons throughout the site for convenience.

If you come across an error while using the Euler dApp, please see the link below for the list of common errors. If the error persists or is not in the common errors list, please join the community Discord and open a ticket in the #support-ticket channel above the News and Announcement channels.

Errors

Euler is a non-custodial permissionless lending protocol on Ethereum that helps users to earn interest on their crypto assets or hedge against volatile markets without the need for a trusted third-party.

Abstract

Here, we present Euler: a permissionless lending protocol custom-built to help users lend and borrow digital assets. The purpose of this white paper is to describe how Euler works at a high level and highlight new features and innovations that help to set it apart from other popular lending protocols, like Compound and Aave.

Introduction

Euler comprises a set of smart contracts deployed on the Ethereum blockchain that can be openly accessed by anyone with an internet connection. Euler is managed by holders of a protocol native governance token called Euler Governance Token (EUL). Euler is entirely non-custodial; users are responsible for managing their own funds.

Permissionless Listing

Asset Tiers

Permissionless listing is much riskier on decentralised lending protocols than on other DeFi protocols, like decentralised exchanges, because of the potential for risk to spill over from one pool to another in quick succession. For example, if a collateral asset suddenly decreases in price, and subsequent liquidations fail to repay borrowers' debts sufficiently, then the pools of multiple different types of assets can be left with bad debts.

To counter these challenges, Euler uses risk-based asset tiers to protect the protocol and its users:

Isolation-tier assets are available for ordinary lending and borrowing, but they cannot be used as collateral to borrow other assets, and they can only be borrowed in isolation. What this means is that they cannot be borrowed alongside other assets using the same pool of collateral. For example, if a user has USDC and DAI as collateral, and they want to borrow isolation-tier asset ABC, then they can only borrow ABC. If they later want to borrow another token, XYZ, then they can only do so using a separate account on Euler.

Cross-tier assets are available for ordinary lending and borrowing, and cannot be used as collateral to borrow other assets, but they can be borrowed alongside other assets. For example, if a user has USDC and DAI as collateral, and they want to borrow cross-tier assets ABC and XYZ, then they can do so from a single account on Euler.

Collateral-tier assets are available for ordinary lending and borrowing, cross-borrowing, and they can be used as collateral. For example, a user can deposit collateral assets DAI and USDC, and use them to borrow collateral assets UNI and LINK, all from a single account.

EUL holders can vote to liberate assets from the isolation-tier and promote them to the cross-tier or collateral-tier through governance mechanisms. Promoting assets up the tiers increases capital efficiency on Euler because it allows lenders and borrowers to use capital more freely, but it may also expose protocol users to increased risk. It is therefore in EUL holders' interests to balance these concerns.

Lending and Borrowing

Tokenised Debts

Rather than providing non-standard methods to transfer debts, Euler uses the regular transfer/approve ERC20 methods. However, the permissioning logic is reversed: rather than being able to send tokens to anyone, but requiring approval to take them, dTokens can be taken by anyone, but require approval to accept them. This also prevents users from "burning" their dTokens. For example, the zero address has no way of approving an in-bound transfer of dTokens.

Borrowers pay interest on their loans in terms of the underlying asset. The interest accrued depends on an algorithmically determined interest rate for each asset. A portion of the interest accrued is held in reserves to cover the accumulation of bad debts on the protocol.

Protected Collateral

Defer Liquidity

Normally, an account's liquidity is checked immediately after performing an operation that could fail due to insufficient collateral. For example, taking out a borrow, withdrawing collateral, or exiting a market could cause a transaction to be reverted due to a collateral violation.

However, Euler has a feature that allows users to defer their liquidity checks. Many operations can be performed, and the liquidity is checked only once at the very end. For example, without deferring liquidity checks, a user must first deposit collateral before issuing a borrow. However, if done in the same transaction, deferring the liquidity check will allow the user to do this in any order.

Feeless Flash Loans

Unlike Aave, Euler doesn't have a native concept of flash loans. Instead, users can defer their liquidity check, make an uncollateralised borrow, perform whatever operation they like, and then repay the borrow. This can be used to rebalance positions, build-up complex positions, take advantage of external arbitrage opportunities, and more.

Because Euler only charges fees according to the time value of money, and from the blockchain's perspective flash loans are held for a duration of 0 seconds, they are entirely free on Euler (ignoring gas costs). We believe that flash loan fees are ultimately in a race to the bottom that will be accelerated by advances like flash minting. The ecosystem benefits gained from simple and free flash loans outweigh the relatively modest benefit from flash loan fees.

Risk-adjusted Borrowing Capacity

Like other lending protocols, Euler requires users to ensure that the value of their collateral remains higher than the value of their liabilities (except during the intermediate period when liquidity checks have been deferred). Over-collateralisation is encouraged by limiting how much borrowers can take out as a loan in the first place.

Compound achieves this in a one-sided way by using collateral factors to adjust down the value of a borrower's collateral assets when deciding how much they can borrow. This gives rise to a 'risk-adjusted collateral value' that helps to create a buffer that can be drawn upon by liquidators in the event that the value of a borrower's assets and liabilities changes over time. One of the problems with this approach is that it only adjusts for the risks associated with a borrower's collateral assets decreasing in value. There may be an asymmetric risk, however, of the borrower's liabilities increasing in value. This risk is not factored into the collateral factors.

On Euler, we therefore use a two-sided approach where we also adjust up the market value of a borrower's liabilities to arrive at a 'risk-adjusted liability value'. This approach improves capital efficiency on the protocol because it allows Euler to factor in the asset-specific risks of both downside and upside price movements. These risks are encapsulated in asset-specific collateral factors (as on Compound) and borrow factors (new to Euler). Ultimately, this approach means that the liquidation threshold of every borrower is tailored to the specific risk profiles associated with the assets they are borrowing and using as collateral.

To give an example, suppose a user has $1,000 worth of USDC, and wants to borrow UNI. How much can they borrow? If USDC has a collateral factor of 0.9, and UNI has a borrow factor of 0.7, then a user can borrow up to $1,000 * 0.9 * 0.7 = $630 worth of UNI. At this level of borrowing, the risk-adjusted value of their collateral is $1,000 * 0.9 = $900, and the risk-adjusted value of their liabilities is $630 / 0.7 = $900. If UNI increases in price, then the risk-adjusted value of their liabilities will also increase to >$900, and then they will be eligible for liquidation. The buffer allowing for liquidation is $1,000 - $630 = $370.

Decentralised Price Oracles

To be able to calculate whether a loan is over-collateralised or not, Euler needs to monitor the value of users' assets. On Compound, Maker, and Aave, various systems are used to get prices from off-chain sources and put them on-chain so that they can be accessed by the relevant smart contracts.

TWAP

Uniswap TWAP is calculated using the geometric mean price of an asset over some interval of time. TWAP in general is both a smoothed and lagging indicator of the trade price: a TWAP over a short interval is a less smooth function, but more up-to-date, whilst a TWAP over a long interval is a smoother function, but less up-to-date. TWAP is ideal for Euler's purposes for several reasons.

First, TWAP is resistant to price manipulation attacks. It cannot be manipulated within a transaction or block (for example, with flash loans or flash bots) because it is calculated using historic data. It is also expensive to manipulate using large market orders because the manipulated price must be maintained for some period of time relative to the TWAP time interval. During this time, other users can take advantage of the manipulated price with arbitrage, which will cause it to revert back to the broader market price. Arbitrage is especially practical on the blockchain because arbitrageurs have access to large amounts of capital (including from flash loans) and the atomic nature of transactions means that arbitrage transactions have a low execution risk. For these reasons, manipulating the price on a single decentralised exchange usually requires more widespread manipulation of all on-chain exchanges simultaneously, although even this can't prevent the (less practical but still possible) arbitrage between on and off-chain exchanges.

Second, the smooth nature of TWAP helps to remove the impact of price shocks on borrowers. In the event of a large trade, the current price on Uniswap can be moved significantly. Usually, arbitrage bots will quickly converge this to the broader market value, so the maximum deviation of the TWAP will only be a fraction of the temporary price movement. This prevents some unnecessary liquidations and loans that may quickly become undercollateralised.

Third, instead of instantly jumping between two price levels, TWAPs change continuously, second-by-second. This property is used by Euler's liquidation process to implement Dutch auctions that reduce the value captured by miners and front-running bots.

Time Interval

One of the challenges in using TWAP is determining the right interval over which it should be calculated for a given asset. The trade-offs involved with shorter (longer) intervals may sometimes need to be taken into consideration and altered for specific assets. Euler therefore allows the default time interval to be updated by governance if EUL holders deem it necessary.

Liquidations

A borrower is considered to be in violation on Euler when the value of their risk-adjusted liabilities exceeds the value of their risk-adjusted collateral. A borrower that has just become in violation still has enough collateral to repay their loan, but is adjudged to be at risk of defaulting on their loan. Consequently, they may be liquidated in order to limit the potential for them to default.

MEV-resistance

To remedy these issues, Euler uses a different approach. Rather than a fixed discount percentage, we allow the discount to rise as a function of how under-water a position is. This turns a one-shot opportunity, where liquidators have no option but to engage in a PGA, into a type of Dutch auction. As the discount slowly increases, each would-be liquidator must decide whether or not to bid for a liquidation at the current discount on offer. Liquidator A might be profitable at 4%, but liquidator B might run a more efficient operation and be able to jump in sooner at 3.5%. The Dutch auction is aided by the TWAP oracles used on Euler because a shock to the price does not bring with it a singular point at which every liquidator becomes profitable all at once. Instead, the price moves more smoothly over time leading to a continuum of opportunities to liquidate, which further helps to limit PGAs. Overall, this process should help to drive the discount price towards the marginal operating cost of liquidating a borrower.

However, by itself, this process does not prevent MEV because miners and front-runners can still steal a liquidator's transaction. To limit this form of MEV, we allow liquidity providers on Euler to make themselves eligible for a "discount booster", which allows them to become profitable in the Dutch auction before miners and front-runners (who do not have the booster).

Soft Liquidations

The fraction of a borrower's debt that can be paid off by liquidators in one go is referred to by Compound as the 'close factor.' On both Compound and Aave, the close factor is currently fixed at 0.5, meaning liquidators can pay off up to half a borrower's loan in one go, regardless of how underwater their position is. This approach has a couple of potential drawbacks.

On Euler, we therefore use a dynamic close factor to try to `soft liquidate' borrowers. Specifically, we allow liquidators to repay up to the amount needed to bring a violator back out of violation (plus an additional safety factor). This means that borrowers who are only slightly in violation will often have much less than half their debts repaid during a liquidation, whilst borrowers who are heavily in violation will often have much more than half their debts repaid during a liquidation (their whole position might be closed in some circumstances).

Reserves

In rare circumstances, the value of a borrower's collateral might become less than the value of their liabilities. In this situation, the borrower is said to be 'insolvent.' Insolvent borrowers will typically be liquidated repeatedly until they have little to no collateral left. Any leftover liabilities after liquidations have stopped can be considered 'bad debt' that we can assume will never be repaid. If bad debt accumulates on the protocol, it increases the chance that lenders might all rush at once to withdraw their funds (to avoid becoming the bearer of the bad debt). This phenomenon is known as `run on the bank.'

To reduce this risk, Euler follows Compound by allowing a portion of the interest paid by borrowers in each market to accumulate into a reserve. The idea behind this is to allow the reserves to act as a lender of last resort in the event of a run on the bank. Providing that reserves accumulate at a faster pace than bad debt, lenders do not need to worry about being able to withdraw their funds. Euler reserves operate similar to those on Compound, except that Euler reserves are tracked in eToken units, rather than underlying units, which means that Euler reserves earn interest automatically whereas Compound reserves do not.

The proportion of interest paid into the reserves is called the `reserve factor' and it is a parameter specific to each lending market. There are trade-offs to consider when setting the reserve factor. A reserve factor of zero would mean no reserves accrue, which could stifle lending because of the bad debt issue. Nevertheless, a high reserve factor would mean a large portion of interest is diverted away from lenders, which could also stifle lending as lenders seek a better rate elsewhere. Thus, EUL holders may wish to use governance to select a reserve factor that balances these trade-offs for each type of asset.

Liquidation Surcharge

During a liquidation, the liquidator is required to provide a slightly larger amount of the borrowed asset than is being repaid on behalf of the violator. This extra amount is contributed to the reserves for the borrowed asset as a fee. The base liquidation discount starts at the level of this fee, so it is ultimately paid by the violator.

As a result, more volatile assets, which generally trigger more liquidations, will tend to accrue reserves at a faster pace than less volatile assets, helping to protect lenders of those assets. Additionally, this fee ensures that 'self-liquidating' is always net-negative, which adds a profitability threshold that some undesirable manipulation strategies are unlikely to meet.

Interest Rates

Both Compound and Aave use static linear (or piecewise linear) interest rate models to guide the cost of borrowing on their protocols. Broadly speaking, as demand for borrowing from the pool increases or supply decreases, interest rates go up, and when supply increases or the demand for borrowing decreases, interest rates go down.

Static models work well if they are appropriately parameterised ahead of time, but can be problematic when parametrised incorrectly. For example, if the slope of the static linear function is too shallow, it can lead to the cost of borrowing being underpriced, with lenders unable to withdraw their assets because a pool has become over-utilised. On the other hand, if the slope of the static linear function is too steep, it can lead to the cost of borrowing being too expensive, which can stifle borrowing and lead to low capital efficiency.

Reactive Interest Rates

Compound Interest

Compound interest is accrued on Euler on a per-second basis. This differs from other lending protocols, where interest is typically accrued on a per-block basis. A per-second basis is generally expected to perform more predictably in the long-run, even if upgrades to Ethereum lead to changes in the average time between blocks.

Gas Optimisations

Euler’s smart contracts minimise the amount of storage used, implement a module system to reduce the amount of cross-contract calls, and have had a number of other gas usage optimisations applied. This makes the protocol cheaper on most operations than other lending protocols.

Transaction Builder

The user interface includes a convenient tool to help users batch up multiple transactions and reduce their gas costs, which we call a transaction builder. Advanced users can use this feature in conjunction with a 'defer liquidity checks' option provided on the protocol to rebalance loans or perform flash loans.

Sub-accounts

Asset tiers help to isolate risks on Euler, but they open up a new user-experience problem. Specifically, it would quickly become cumbersome for borrowers to use Euler if they had to send collateral to a new Ethereum account for each new isolation-tier loan they wanted to take out.

Euler therefore enables every Ethereum account using the protocol to access up to 256 sub-accounts (including the primary account), which can be used to cost-effectively manage multiple positions at the same time. A user only needs to approve Euler's access to a token once, and can then deposit into any sub-account. Additionally, no approvals are required to transfer assets and liabilities between sub-accounts, which allows users to isolate and segregate their collateral and debts as desired.

Governance

• The tier of an asset

• Collateral and borrow factors

• Price oracle parameters

• Reactive interest rate model parameters

• Reserve factors

• Governance mechanisms themselves

Acknowledgements

References

Here you will find the white paper, guides on how to use the app, and all the developer materials needed to start building on top of Euler.

About

Connecting a web3 wallet is the first step to utilise the Euler platform. Euler integrated Blocknative to enable users to connect with Formatic, MetaMask, Ledger, Trezor, WalletConnect, and Coinbase.

Step-by-step

1. Click the Connect button at the top right of the page.

2. Select your wallet provider in the Blocknative window.

3. Select your wallet from the list and unlock it.

4. Ensure you have selected the correct wallet, and your network is set to the correct one.

FAQ

What chains/networks does Euler support? ****Ethereum Mainnet and Goerli testnet (replacement for Ropsten).

About

Depositing into Euler allows users to supply assets to borrowers and earn the Supply APY for an asset. Depositing collateral is also the first step in being able to borrow assets on Euler.

Step-by-step

1. Click the Quick Action button in the navigation bar.

2. From the menu, choose Deposit.

3. Select the sub-account you wish to deposit into and the asset you wish to deposit.

   • Note: if you have not yet approved Euler to be able to use this asset, you will need to Enable it first. In some cases you can achieve this with Sign Permit which is a type of gasless approval (free).

4. If you wish to use the asset as collateral to take out loans, check the Enter market box.

   • Note: you can only borrow against 'Collateral' tier assets. You will not be able to borrow against assets listed as 'Cross' or 'Isolated'. Entering the market for these type of assets will make them available to liquidators during liquidation events, but will not increase your borrowing power.

5. Enter the amount you wish to deposit (or hit Max to send the full available balance in your wallet).

6. Click Deposit. Your transaction will move to the Transaction Builder, which is a kind of shopping trolley for transactions. From here you have two options:

   1. Click Send txs to immediately submit the deposit.

   2. Add more transactions by revisiting the Quick Action button. You can then submit them all at once by clicking Send txs. This approach generally saves gas over submitting multiple individual transactions.

FAQ

About

Borrowing assets on Euler creates a loan that users can repay at any time. Borrowers pay the Borrow APY rate to lenders. Note that users must first deposit collateral before they can borrow. All loans are over-collateralised, which means that users must deposit more value into the protocol than they can borrow.

Step-by-step

1. Select Borrow in the Quick Action menu.

2. Select the Euler sub-account that you want to borrow on.

   • Ensure that you have sufficient collateral deposited in the sub-account, and the asset is entered into the market.

3. Select the asset you are interested in.

4. Enter the amount you wish to borrow:

   • The Max button is representative of Liquidation x 1.5 to give a better UI experience, but we do not recommend you borrow more than Safe Max (unless it is a self-collateralized loan).

   • Select Safe Max to borrow enough such that your Euler sub-account will result in having a health score of 1.25 (not supported for self-collateralized loans).

   • Select Liquidation to borrow enough such that your Euler sub-account will end up at a health score of 1 (right on the edge of a liquidation).

FAQ

How come I can't borrow with an isolated asset? ****Note that isolated and Cross assets cannot be used as collateral, but Cross assets can be borrowed alongside other assets, while Isolated assets cannot. Euler aims to curb risk by limiting collateral tier assets to certain tokens with lower risk profiles.

About

Users can repay their borrowed assets using assets in their wallet are existing assets already deposited into Euler. Users are able to swap assets if they repay using deposited asset that are different from the borrowed assets.

Step-by-step

1. Ensure that you have sufficient funds in your wallet or sufficient Euler deposits to repay a loan.

2. Select the Euler sub-account that you want to repay the loan on.

3. If repaying the loan using your Wallet Balance, select the liability asset (loaned asset) then the amount you want to repay.

4. If repaying the loan using Euler deposits, select the liability asset then the amount to repay.

5. Continue by selecting the swapped asset used to repay the loan and the amount.

   • If necessary, an appropriate swap will be made on an external exchange. Use the gear icon in the top-right to customise swap parameters.

6. Select Max to repay your full loan (or maximum amount possible based on your wallet balance/Euler deposits).

7. If a swap is necessary, wait for a quote and click the Swap and Repay button.

FAQ

Can I repay a loan with a different asset? ****Yes, either from the user's wallet or Euler deposits, which will be swapped for the loaned asset and repaid.

About

Mint is a unique function on Euler that enables users to simulate a recursive borrowing strategy. Mint creates equal amounts of deposits and debts for the same asset. It is often the starting point for creating a multiplied long/short position or used for liquidity mining (when lending/borrowing on a particular market is incentivised).

Example

A user first does a Deposit of $1000 of USDC. They then Mint $5000 USDC. Their account now has a total of $6000 USDC deposits, and $5000 USDC debts. This gives them a multiplied position, since they hold more debt than their initial deposit would allow for.

The Mint function mimics what would happen if a user deposited $1000 USDC, then borrowed $900 USDC, then redeposited that $900 USDC, to borrow $810 more USDC, and so on.

Step-by-step

1. Ensure that you have sufficient collateral in the sub-account you are minting to.

2. Select the Euler sub-account that you want to mint from.

3. Select the asset you are interested in.

4. Enter the amount you wish to have upon completion.

   • Max here is representative of 19x multiplier (right on the edge of a liquidation), and hence we do not recommend you mint more than safe max.

   • Select Safe Max to mint enough deposits and debt such that your Euler sub-account will result in having a multiplier of 15x.

   • Select 0 or the Burn button to burn a previously minted position (burn removes an equal amount of deposits and debts from an account).

   • While entering the amount, observe the Multiplier and Time to Liquidation to make a decision.

FAQ

Can I be liquidated if I use mint? ****Mint creates a multiplied position which poses liquidation risk when Mint an asset different from the user's collateral. Additionally, the interest rates also present risk of loss as they're variable and dependent on the market.

About

Swapping assets in Euler enables uses to exchange one deposited asset for another using external exchanges that have been integrated into the platform (1inch or Uniswap).

Step-by-step

1. Ensure you have sufficient supply tokens in the sub-account you want to swap from.

2. Select the Euler sub-account that you want to swap from.

3. Select the Euler sub-account that you want to swap to.

4. Select the asset you wish to sell.

5. Select the asset you wish to buy.

6. Enter the amount you wish to sell.

   • Select Safe Max to sell the amount such that your Euler sub-account will result in having a health score of 1.25.

   • Select Liquidation to sell the amount such that your Euler sub-account will end up at health score 1 (right on the edge of a liquidation).

   • Select Max to sell all the selected asset.

   • Users can set the slippage to the desired value by clicking the gear icon in the top-right corner.

7. Wait for a quote and click the Swap button.

FAQ

Can I swap assets from my wallet? ****Currently, users can only swap assets they've deposited.

You have a collateral violation

Collateral violation means you're trying to borrow something without having enough collateral in your account to do so. Make sure you deposit a collateral asset first, like USDC. You can filter collateral assets on the markets page.

No match, code: NETWORK_ERROR

Please try refreshing the page and make sure you have a stable internet connection and your web3 wallet is on the correct RPC network (e.g., Goerli Test Network).

No match, code: UNPREDICTABLE_GAS_LIMIT

Try refreshing the page and trying the transaction again. This error also often occurs for other reasons. So if you keep having this issue, please check your browser’s console log and please report the error that it shows.

Unknown error

Please try refreshing the page. If you receive the same error message, please check your browser’s log for errors and create a support ticket with what you find.

Transfer amount exceeds balance, please check you have enough tokens in your wallet and make sure they are also not deposited into Euler

You don't have enough tokens in your wallet. If using the test, please make sure you have the correct testnet tokens from the official Euler testnet faucet.

execution reverted: e/too-many-entered-markets

For a given account, you can enter 10 markets max. You should try the transaction with another account or sub-account.

RPC error

If, due to any reason, user wants to use their originally selected RPC to send the transaction, the following should be done (example described based on Metamask, actions might differ for other wallets):

• change the RPC to default Ethereum network

• add all the desired transactions to the batch

• assure that the simulation is passing without any error

• click 'Send txs' button

• when Metamask pops up

  • click on 'New address detected! Click here...' at the top. Then click 'Add a nickname'. Input 'Euler Exec' as a nickname and click 'Save'

  • click on 'HEX', scroll down and click 'Copy raw transaction data'

  • click 'Reject'

  • disregard the error in the dapp

  • open Metamask and click 'Send'

  • select previously added 'Euler Exec' address

  • leave the asset set to ETH

  • leave the amount as 0 ETH

  • paste your clipboard contents into the 'Hex Data' field

  • change the network to desired

  • click 'Next' and sign the transaction

About

Users can withdraw assets from Euler at any time, directly to their wallet. Prior to withdraw, users should make sure debts are sufficiently repaid in order to withdraw their intended amount.

Step-by-step

1. Click on Withdraw in the Quick Action menu and select the Euler sub-account that you want to withdraw your tokens from and ensure that you have funds deposited.

2. Select the asset you are interested in.

3. Enter the amount you wish to withdraw:

   • Select Max to withdraw either your full balance or the most that the pool will allow if the pool has less available liquidity than you deposited.

   • Select Safe Max to withdraw enough such that your Euler sub-account will result in having a health score of 1.25.

   • Select Liquidation to withdraw enough such that your Euler sub-account will end up at health score 1 (right on the edge of a liquidation).

FAQ

About

Short allows users to build a leveraged short position by borrowing and then immediately selling an asset using external exchange (1inch or Uniswap).

Step-by-step

1. Ensure that you have sufficient collateral in the sub-account you are shorting on.

2. Select the Euler sub-account that you want to short on.

3. Select the asset you wish to short on.

4. Select the asset you wish to use as the collateral.

5. Enter the amount you wish to short:

   • Select Safe Max to short the amount such that your Euler sub-account will result in having a health score of 1.25.

   • Select Liquidation to short the amount such that your Euler sub-account will end up at health score 1 (right on the edge of a liquidation).

   • Users can set the slippage to the desired value by clicking the gear icon in the top-right corner.

6. Wait for a quote and click the Short button.

FAQ

I'm creating a Short/Long position, so why do I see the asset in a Self Collateral and Self Liability row? ****The asset is sold and redeposited on Euler, which creates the self collateral/liability row, but your intended position is there.

About

Burn enables users to 'repay' and undo their multiplied positions created by the Mint function by removing an equal amount of deposits and debts from an account.

Step-by-step

1. Ensure that you have sufficient supply & debt tokens in the sub-account you are burning on.

2. Select the Euler sub-account that you want to burn on.

3. Select the asset you are interested in.

4. Enter the amount you wish to burn:

   • Select Max to burn all available of selected asset.

   • While entering the amount, observe the Multiplier to make a decision.

FAQ

Can I use Burn to repay my debts? ****Burn is only used to close leverage positions from Mint and Long functions. Use the Repay function to close borrow positions.

About

Sub-accounts enable users to create new accounts without having to create or connect different wallets. Users can create sub-accounts to isolate positions, for example. Here are the steps to create sub-accounts.

Step-by-step

In the top right navigation, hover over the icon and click on the Create New button, which will automatically add a new sub-account and simultaneously switch to it.

• There is no cost to create sub-accounts.

• Part of opening up ourselves to lending on every market means that we have to protect the system against volatile and potentially malicious tokens. To do this we have categorised assets as isolated, cross and collateral.

• If the asset is isolated, then you can only borrow and lend on one single asset per sub-account.

FAQ

How many sub-accounts can I create? ****Users can create up to 255 sub-accounts (in addition to their Main account, which is sometimes called sub-account 0). Can I rename sub-accounts? ****No, sub-accounts cannot be renamed. This is because all the information held about users' accounts is retrieved from the blockchain, and adding sub-account names to the chain would be expensive.

About

Transfer allows users to move deposited and debt assets between sub-account in Euler. User should ensure any borrow positions will have enough collateral assets in the related sub-accounts prior to transferring any assets.

Step-by-step

Transfer ETokens

1. Ensure that you have sufficient deposits in the sub-account you are transferring from.

2. Select the Euler sub-account that you want to transfer from.

3. Select the Euler sub-account that you want to transfer to.

4. Select the asset you are interested in.

5. Enter the amount you wish to transfer:

   • Select Max to transfer all the selected asset deposits (or maximum amount possible based on your 'from' sub-account positions).

   • Select Safe Max to transfer enough such that your 'from' Euler sub-account will result in having a health score of 1.25.

Transfer DTokens

1. Ensure that you have sufficient debt tokens in the sub-account you are transferring from.

2. Select the Euler sub-account that you want to transfer from.

3. Select the Euler sub-account that you want to transfer to.

4. Select the asset you are interested in.

5. Enter the amount you wish to transfer:

   • Select Max to transfer all the selected asset debt (or maximum amount possible based on your 'to' sub-account positions).

   • Select Safe Max to transfer enough such that your 'to' Euler sub-account will result in having a health score of 1.25 (not supported for self-collateralized loans).

FAQ

Can I transfer multiple assets? ****Yes, you will need to make multiple actions sent to the transaction builder.

About

Toggling collateral assets on Euler enables users to protect their tokens as collateral without permitting borrowing. Users may want to do this so that their collateral is purely being used as collateral for their own borrowed assets, while lowering other risks.

Step-by-step

1. At the desired sub-account page, find the asset under the supply column.

2. Click the toggle button in the Entered column in the Account view to enter/exit market.

   • Ensure that you have no outstanding borrows on the account that are collateralised by a given asset.

FAQ

The transaction builder won't let me toggle collateral, it presents a Collateral violation error. ****Toggling collateral will disallow using the asset as collateral, so you won't be able to borrow using the asset.

About

Wrap is a versatile function that allows users to convert between wrapped and unwrapped assets. Two of the most common use cases are wrapping/unwrapping Ethereum (ETH) and wrapped Ethereum (WETH) as well as Lido Staked ETH (stETH) and wrapped Lido Staked ETH (wstETH). However, users can also wrap and unwrap their Protected Collateral tokens (pTokens).

Step-by-step

1. Ensure that you have sufficient amount of asset in your account.

2. Select the assets you want to wrap or unwrap to/from.

3. Enter the amount you wish to wrap or unwrap.

4. Click the Wrap or Unwrap button.

FAQ

Can I wrap/unwrap other assets? ****You can only wrap/unwrap the assets listed in the dropdown.

About

Step-by-step

1. Search and select an unlisted asset.

2. Click Activate to create a market for the token.

   • Unlisted tokens come from community token lists, contact support if the desired token does not appear in the list.

   • Borrowing will not be available right away, somebody has to lend the asset first.

FAQ

I've activated a market, how come I cannot use it as collateral? ****Newly activated markets are automatically set as isolated tier assets. Create a proposal to make it a collateral tier asset if it has sufficient liquidity in its oracle.

About

Allowances enable users to add, update or revoke approval of the Euler protocol to access markets in the user's wallet. Users can change the amount of tokens in pre-approved markets.

Step-by-step

1. Select an asset from the list.

2. Enter the amount you wish to allow the protocol to approve for use and click Update.

   • Max will allow the protocol to use the total supply of that token, not just what the user owns.

   • Enter 0 (zero) to restrict the protocol from using any more than zero tokens.

3. If listed, change the pre-approved amounts by entering a new amount and clicking Update or by selecting Max.

4. To completely revoke allowance, select the Revoke button.

FAQ

I've changed my allowances, but now I cannot complete some transactions. ****Make sure the amount in your transaction is allowed in the amount you've permitted in the allowances.

Introduction

The Euler risk framework aims to do two things:

1. Maximise capital efficiency through borrowing and lending activity; and

2. Minimise risk and the probability of bad debts.

To achieve this, a methodology to stress test individual assets as well as simulate a portfolio of assets in tail risk scenarios.

Methodology

Ranking all available ERC20 tokens according to risk parameters:

1. Smart Contract Risk

2. Centralisation

3. Volatility

4. Liquidity

Additionally, assessing Oracle Risk

In order to arrive at:

1. Collateral Factor

2. Borrow Factor

3. Cross Tier Factor

Simulate risk scenarios to maximise borrowing and lending activity and minimise bad debts

Update factors and methodology through governance

On Euler, we use a two-sided approach to estimate risks of borrowing any tokens versus any given collateral. These risks are encapsulated in asset-specific collateral factors (as on Compound) and borrow factors (an Euler innovation).

Consequently, collateral factor reflects the risk of the asset that’s being used as collateral, whilst borrow factors reflect risks of the asset that’s being borrowed.

Collateral Assets

When it comes to quality of collateral, it is of paramount importance that it ranks very high in our index list.

An illiquid collateral asset can be exploited by causing a price surge to allow a malicious user to borrow an inflated amount of tokens without an incentive to return them.

Alternatively, a collateral asset that’s collapsing in price and is experiencing high slippage makes it uneconomical for liquidators to close positions, leading to bad debts. This scenario is more systemic, which is why only the highest quality assets can become eligible collaterals.

Borrowed Assets

While borrowed assets are less systemic than collateral assets, they also have specific risks.

For example, a borrowed token price that triples in a matter of seconds versus its collateral means there’s no incentive for the borrower to return the token, which results in bad debt. This is why the borrow factor should reflect the volatility and liquidity of the asset.

Alternatively, crashing a borrowed asset's price allows a malicious actor to borrow more tokens than normally possible. This attack can happen if there's not enough liquidity overall, especially if liquidity is too concentrated around a tiny range.

Euler assets fall into three different tiers: isolated, cross and collateral tiers.

Isolated Tier

Isolated tier assets are available for ordinary lending and borrowing, but they cannot be used as collateral to borrow other assets, and they can only be borrowed in isolation. What this means is that they cannot be borrowed alongside other assets using the same pool of collateral. For example, if a user has USDC and DAI as collateral, and they want to borrow isolation-tier asset ABC, then they can only borrow ABC. If they later want to borrow another token, XYZ, then they can only do so using a separate account on Euler.

Governance allows to promote assets to cross and collateral tiers, but also to alter borrow factors. However, there will be a default borrow factor for all assets listed in the isolated tier.

Cross Tier

Cross tier assets are available for ordinary lending and borrowing, and cannot be used as collateral to borrow other assets, but they can be borrowed alongside other assets. For example, if a user has USDC and DAI as collateral, and they want to borrow cross-tier assets ABC and XYZ, then they can do so from a single account on Euler.

Collateral Tier

Collateral tier assets are available for ordinary lending and borrowing, cross-borrowing, and they can be used as collateral. For example, a user can deposit collateral assets DAI and USDC, and use them to borrow collateral assets UNI and LINK, all from a single account. \

Scale

Each risk parameter goes from 0 (highest risk) to 1 (lowest risk). The combination of risk parameters results in a comprehensive index for a given digital asset, which also goes from 0 to 1.

Risk Parameters

Smart Contract Risk

Smart contract risk parameter can either be 0, 0.5 or 1.

It is arguably the biggest tail risk, as a badly written smart contract can result in hacks and stolen money, leading to catastrophic collapse in price.

We assess this by checking whether the protocol was audited, the number of days the protocol has been functioning without hacks and deeper research if needed (for promoting up the tiers).

Centralisation

Centralisation parameter can go from 0 to 1.

It measures whether a small number of holders have undue influence over the token. For example, a founder with 70% ownership of the tokenomics pie and flexible vesting period can oversupply the market with tokens, leading to an abrupt sell-off. Alternatively, a whale holding a large chunk of tokens can easily pass deleterious changes through governance.

This risk can be measured by estimating the median size of token amount per holder. When the ownership structure isn’t transparent, we will employ forensic due diligence.

Volatility

Volatility parameter can go from 0 to 1.

All other things equal, an asset with 100% realised volatility is more likely to cause a liquidation than an asset with a 10% realised volatility. Hence, less volatile assets should have more favourable borrowing and collateral factors.

This parameter can be measured via realised (and implied, if available) volatility, with emphasis on downside risk for collaterals and upside risk for borrowed assets.

Liquidity

Liquidity parameter can go from 0 to 1.

An asset with 100 mil USD daily turnover is easier to buy and sell versus an asset with only 1 mil USD turnover, all other things being equal.

This is particularly important for liquidators that receive collateral assets at discount for repaying borrowed tokens, as they typically immediately sell that collateral. If they’re unable to sell that collateral and/or buy the borrowed asset at a decent price given a liquidator discount, then they do not have the incentive to liquidate. This leads to bad debts, which we need to minimise.

Measuring liquidity can be done by estimating historical slippage caused by a certain amount of volume.

It's important to note that we are estimating the liquidity vs ETH on Uniswap v3, as an existing ETH market on Uniswap v3 is a prerequisite to being activated on Euler and our oracles are based on Uniswap v3 TWAPs.

This means that even if a token has very high liquidity on Uniswap v2, it wouldn't necessarily have a high borrow factor if liquidity is low on Uniswap v3.

About

The transaction builder lists all the functions and actions that the user generated via the Quick Action menu, such as deposit, borrow, mint, etc. The transaction builder also enables users to add, remove, rearrange and edit transactions before approving the final transaction.

Step-by-step

The transaction builder can be expanded out from the right side of the UI by clicking the OPEN button.

• Every time you alter your transaction builder, it automatically checks how much gas you will spend and tries to figure out if there will be any errors.

• Transactions are executed in the order you have specified, and the order of the transactions can be re-arranged in a drag and drop fashion.

• You are able to send transactions from different sub-accounts at the same time.

FAQ

About

IMPORTANT: the Euler Labs team will never ask for your private keys or passphrase.

Step-by-step

1. Open the developer console by pressing Option + ⌘ + J (on macOS) or Shift + CTRL + J (on Windows/Linux). You can open it by right-clicking anywhere on the webpage and selecting Inspect Element option.

2. On the top of the developer panel, there are multiple tabs like Elements, Console, Networks, and Sources.
3. Click on the Console tab
4. Console is a place where we have all errors, warnings and general logs that appeared during the run time of the website.
5. You will find the current errors in red text with a specific error code, the cause, and the file name and line number where this error occurred.

FAQ

Let us know if there's anything you think we should add here.

Let’s say you want to borrow XYZ token. XYZ token ranks high in the index list, and therefore has a borrow factor of 0.80.

Lending

Since the loan is collateralised, you first need to deposit (lend) one or more collateral assets. You deposit ABC, which is a stable coin with a collateral factor of 0.90.

You lend 1000 ABC (1000 USD worth), receive eABC (claim on deposited ABC and interest accrued from utilisation). Note that the more users borrow your ABC tokens, the more interest you accrue and hence the higher value of your collateral.

Borrowing

To calculate the maximum amount of XYZ you can borrow, multiply the borrow and collateral factors: 0.80 x 0.90 = 0.72. Consequently, you can borrow up to 720 USD worth of XYZ against 1000 ABC (0.72 x 1000 ABC).

If you decide to borrow 700 USD worth of XYZ, Euler will mint an equivalent amount of dXYZ (debt token equal to principal amount owed and accrued borrowing costs). Note that if borrowing rates rise, your debt levels will increase as well.

Liquidation Risks

If XYZ token rose in price and/or borrowing interest rose significantly so that the value of your dXYZ rose above 720 USD, you are subject to liquidation and your claim on the collateral (eABC) will be given to a liquidator at a discount as well as your debts (dXYZ) in exchange for repaying the debt.

Similarly, should the value of ABC plummet, your eABC won’t be enough to maintain the 0.72 factor, and you will be subject to the same liquidation procedure.

Return Potential

Note: we have implemented the swap module that allows users to utilize their positions easily without incurring additional gas fees.

General

What is Euler?

Who developed Euler?

What is EulerDAO?

EulerDAO is a decentralised autonomous organisation encapsulating all holders of a governance token called EUL. Holders of the token have voting powers to propose and make changes to the underlying code of the Euler Protocol.

What is the Euler Foundation?

Since DAOs not have a formal legal structure, the Euler Foundation was established as a non-profit Foundation Company designed to represent EulerDAO in the ‘real world’. The Euler Foundation has no shareholders and cannot pay out dividends to its members. Its purpose is to provide a vehicle by which EulerDAO can sign a contract or engage a company for a service that the DAO requires.

Community Involvement

How can I get involved in EulerDAO?

Where is the developer documentation?

Where are your branding guidelines/materials?

Euler dApp

How do I deposit and borrow?

How do I activate a market?

How do I get testnet tokens?

To get testnet tokens for Goerli, connect open the smart contract on Etherscan by clicking the link above. Click on the tab with the green tick, then click on Write Contract and connect your wallet. Once connected, expand the withdraw feature and paste the underlying ERC20 token smart contract address and click on the Write button. This will require you to confirm the transaction in your wallet which costs gas.

Once confirmed, the token faucet smart contract will an amount of the specified testnet ERC20 token (up to a pre-defined threshold) to your connected wallet address.

Why can't I find a specific token to activate?

What are asset tiers?

What are sub-accounts?

What oracle does Euler use?

By default Euler uses Uniswap V3 Time Weighted Average Price (TWAP) as the pricing oracle. However, the oracle used can be changed in the governance process on one-to-one basis. Currently, Euler also supports Chainlink price feeds as a price source.

What is the oracle rating?

What are the reserves?

How can an asset become collateral?

Is Euler on any other chains/L2s?

Euler is currently only on Ethereum Mainnet. Euler is open to and exploring other chains and layers, but nothing is currently imminent.

What is the difference between Sign Permit and Enable?

Features

What are Mint and Burn?

What does the Transfer action do?

Can I swap tokens?

Yes, the swap feature enables users to exchange one deposited asset for another using Uniswap and 1inch DEXs.

How can I short a token?

Should I mine at 19x?

Euler does not give financial advice, but users should note that mining at 19x is highly risky and can lead to liquidation if the user’s collateral cannot cover the interest fees. Mining at 19x most often liquidates positions within the same day it is created.

What is Time To Liquidation (TTL)?

What is a soft liquidation?

Gauges & EUL Distribution

How can I claim EUL tokens?

What utility does EUL have?

What is the distribution of EUL tokens for borrowers?

How are markets decided for each epoch?

EUL Token

Is there a token? How can I earn it?

What are the tokenomics?

Is there a TGE/ICO/IDO?

There is no public sale.

Where can I trade EUL?

While EUL token has been released, Euler Labs does not give financial advice on trading the token.

How do I get an airdrop?

Do testnet users receive rewards?

Someone messaged me promising free tokens/ICO/NFTs/etc, is it real?

No, that is fake. No one related to Euler will ever message anyone directly, nor offer free tokens or investments of any kind.

Partnerships

Who can I contact about partnerships/integrations?

Can we list EUL on our exchange?

Euler cannot advise on exchange listings, nor pay for any listings.

Can we offer our token in your liquidity mining programme?

Euler will be adding this feature in the near future. Please get in touch if you’d like to integrate with the distribution mechanisms.

Can you market our company/token if we pay you or activate our token?

Sorry, Euler does not accept payments or donations of any kind to promote activated markets.

Miscellaneous

How does the Euler dApp detect wallets associated with illicit activities?

In alignment with industry best-practices, Euler utilizes Chainalysis to identify and block wallets that are associated with certain illicit activities.

Chainalysis is a market leader in protecting against interactions with bad actors linked to sanctions, financial crime, child sexual abuse material, terrorist financing, scams, hacked or stolen funds, ransomware, and human trafficking.

It is Euler’s aim to prevent those engaged or associated with illegal activity from using the protocol. Euler is committed to responsible development, innovation, and financial inclusion.

Besides Euler, the smart contracts are upgradeable via Governance which will be controlled by EUL token holders (i.e., the implementation contracts will be upgraded periodically). Hence, for contract interaction, please use the proxy smart contract addresses.

const markets = new Contract(MarketsABI, Markets_Proxy_Address); // proxy address

Networks

The Euler protocol is currently deployed to the following networks:

Mainnet

Goerli

Note: the Governance smart contract is currently used for our risk-guarded launch (Phase 1 of the mainnet launch) while we build up to community-led governance in Phase 2.

To make sure we minimise bad debts whilst maximising activity, we stress-test liquidation scenarios by simulating tail risk events on individual assets as well as on portfolios of assets to estimate bad debt risk.

Example: One asset

For instance, if our index list shows that a token jumped from 250th to 30th place and was able to maintain that position for a sufficient amount of time, we may simulate activity versus bad debts as a share of total loans given different borrow factors. As a result, we may improve the borrow factor from 0.28 to 0.35.

Example: Portfolio of assets

Alternatively, we can simulate a more complicated environment with 50 tokens from the lower quartile as borrowed assets backed uniformly by 4 collateral assets (3 of them time-tested and 1 proposed new collateral) in high volatility situations. By simulating tail risk scenarios, we can assess the worst-case scenario for the protocol and decide whether inclusion of the collateral asset is appropriate.\

Borrow Factor

When someone activates a lending market on Euler for an asset XYZ, it is by default an isolated tier asset and its borrow factor is 0.28.

This means that if you lend USDC (Collateral Factor of 0.90) and borrow XYZ at Default Borrow Factor (Borrow Factor of 0.28), your effective factor is approximately 0.25 (0.90 x 0.28).

Consequently, when borrowing default assets, you are required to be at minimum 4x overcollateralised. The factor is even more conservative if you borrow against an asset with a lower collateral factor.

Conservative overcollateralisation is intended to prevent bad debts.

For example, suppose the borrowed asset XYZ sharply skyrockets in price, causing a user's health factor to dip below 1, which means he is subject to liquidation. For the liquidator to be incentivised to liquidate the user, he needs to receive an attractive liquidation bonus in terms of the violator's lent assets. If there are simply not enough lent assets to back the bonus, a liquidator will choose not to liquidate. This leads to bad debts.

Alternatively, someone could manipulate XYZ pricing lower to be able to borrow a lot more XYZ than normally possible. Eventually, the price gets arbitraged and normalises, which leads to the health factor dipping below 1. Since the position is heavily overcollateralised, there is still enough collateral backing the loan, and hence liquidators are incentivised to repay the debts.

Reserve Factor

The default reserve factor is set at 23%.

This means that for every $1 of interest paid by borrowers on an XYZ asset, 23c is paid into the reserve pool of XYZ while the remaining 77c are paid to lenders of XYZ. These reserves may later be used to repay the bad debts that accrue in the pool.

While a higher reserve factor would in theory help accumulate more substantial reserves to backstop the Euler lending pools, at some point it would discourage lenders as they'll receive too little interest.

Alternatively, a reserve factor that's too low is a lost opportunity to build reserves and hence trust with lenders.

We think a reserve factor of 23% is a perfect balance between building reserves and encouraging lending, especially given our generous EUL distribution scheme that will run in the first few years of Euler protocol's existence.

Interest Rate Model

While we eventually plan to move to a reactive interest rate model that will optimise for utilisation, we start off with a standard kink model. The default kink model is the "small cap" model and its parameters are:

1. Base IR: 0% (APY when utilisation is 0%)

2. Kink IR: 10% (APY when utilisation is exactly Kink%)

3. Max IR: 300% (APY when utilisation is 100%)

4. Kink%: 50% (Percent utilisation where kink occurs)

Given the default assets and their respective utilisation can be extremely volatile, it's important that the lenders aren't constantly exposed to withdrawal risk.

To that end, should utilisation sharply rise beyond the Kink%, high Max IR makes borrowing too expensive to maintain and hence lowers the withdrawal risk

Pricing Parameters

Uniswap3 Pool Fee-Level

The default uniswap3 pool fee-level is the first existing of 0.3%, 0.05%, 1%.

In order to retrieve asset prices, Euler uses Uniswap3's Time-Weighted Average Price (TWAP) for the pair XYZ/WETH, where XYZ is the asset in question and WETH is the reference asset. Since Uniswap3 supports multiple pools for the same pair which differ by fee-level, which pool to actually query needs to be configured on a per-asset basis.

Although in theory pools should converge to similar prices due to arbitrage, this is not always the case. For example, when a pool has insufficient liquidity to be profitable for arbitrage bots. Additionally, the amount of liquidity has an impact on the cost of price manipulation.

In order to be promoted up a tier, a review of the configured pool fee must be conducted. In some cases, extra "full-range liquidity" must be added to increase the cost of price manipulation.

TWAP Length

The default TWAP length is set at 30 minutes.

Euler uses Uniswap v3 TWAPs as the pricing oracle for all assets and debts on Euler.

However, a TWAP that's too long causes a significant lag between last-traded price on Uniswap and the TWAP, leading to risks of bad debt.

For eg, a user deposits ETH as collateral and borrows XYZ token. Imagine that the user's XYZ debt swells to $70 worth, and he's subject to liquidation. A liquidator would have to take on some of that XYZ debt and repay it.

However, recall that while the debt is priced in TWAP terms, a liquidator would need to buy XYZ on the market to repay that debt. If the market price of his debt is $120, the liquidator would be buying high on the market to receive a smaller amount of TWAP-priced assets of the violator plus liquidation bonus.

Hence, when the TWAP - Market Price spread become significantly large due to the TWAP lag, a liquidation may be uneconomical.

Alternatively, a TWAP that's too short means it becomes a lot cheaper to manipulate asset prices. For example, one could artificially pump a collateral asset's price to be able to borrow a disproportionate amount of XYZ tokens and run away with them.

Uniswap Observation Cardinality

The minimum uniswap3 cardinality is 10. When a market is activated, the cardinality of the uniswap3 pool that will be used for pricing is increased to this value, if it is currently below it.

In order to maintain the TWAP, each Uniswap3 pool needs to keep a historical record of accumulated prices at previous points in time. Each record is called an observation, and their number is called the observation cardinality. Unfortunately, reserving the storage for these records costs gas.

The larger the cardinality, the longer the possible TWAP window. If a swap is executed every block, the longest TWAP that is possible is the cardinality times the average block time over the last N blocks.

On Euler, if it is not possible to retrieve a TWAP of the configured length, then the oldest available price is used instead. This means that the protocol can always be interacted with, and prevents some types of attacks that aim to prevent liquidation. However, it also means that the cardinality is an important security parameter for a pool.

This low minimum value ensures that activating a market is not too expensive. However, since a larger cardinality is required to ensure a longer TWAP window, in order for an asset to be promoted to a higher tier, a larger value cardinality will be required, typically 144 or higher.

Liquidation Parameters

Target Health Factor

The default target health factor is 1.25.

When a user is in violation due to his risk-adjusted liabilities exceeding his risk-adjusted collateral, his health factor dips below 1. However, should a liquidator come in, he may only take enough debt and assets from the violator to shift his health factor to 1.25.

Nevertheless, had we set the target health factor to 1.00, we would have run into the risk of making liquidations uneconomic. Namely, the size of debt being repaid, and the consequent reward may be too small to incentivise a liquidator.

Similarly, in a volatile market, being restored to 1.00 means a user may quickly dip below 1.00 again and again, which implied higher gas fees for liquidators and ever-decreasing rewards.

We think 1.25 is a good trade-off between a good borrowing experience and well-incentivised liquidations.

Maximum Liquidation Discount

The default maximum liquidation discount is set at 20%.

When a user is subject to liquidation, some of his debt (dTokens) and assets (eTokens) are transferred to the liquidator, which leads to the health score shifting to 1.25.

However, to incentivise the liquidator to do this work, he receives the eTokens at a discount. Another way of thinking about the discount is receiving a bonus on top of the asset value.

Let's imagine a simple example without liquidation surcharges and boosters (explained in this page below): assume a user's health factor is 0.90. This implies a liquidation discount of 10% (1 - 0.90). Hence, for taking on $100 worth of dTokens, a liquidator receives $110 worth of eTokens.

If the discount is too low, a liquidator may be discouraged from conducting the liquidation. Alternatively, a discount that's too high means borrowers are giving away too much of their assets to liquidators. This also creates a risk of never going back to 1.25 health score, as every liquidation decreases the amount of assets a user has.

Hence, a liquidation discount has an upper ceiling of 20% to improve the borrowers' experience.

Liquidation Surcharge

The default liquidation surcharge is set at 2%.

Whenever a liquidator takes on someone's debt, they need to repay 2% more than originally taken from the violator. To compensate him for that, the violator pays the liquidator an additional 2% of his lent assets.

This is intended to do two things:

1. The surcharge accumulates in the reserve pool, and hence every liquidation makes the pool healthier. The more volatile an asset, the more often liquidations occur, and the bigger the pool is.

2. Discourage malicious self-liquidation strategies. Due to the surcharge, every self-liquidation ends up being net negative.

Liquidation Booster Ceiling and Slope

The default liquidation booster is ceiling and slope are set at 2.5% and 2x respectively.

To incentivise liquidators to lend, they may be more competitive than their peers should they lend through Euler.

For example, if a user's health score is at 0.90 and value of risk-adjusted debt is $1,000, the implied liquidation discount is 10% (1 - Health Score). However, due to slippage and gas fees, liquidators are only profitable at an 11% discount.

At the same time, a liquidator that supplied $1,000 risk-adjusted collateral can be 2x more competitive than the rest of the market with a ceiling of 2.5%. Should he take on the user's debt at a 10% discount, he will actually receive a more generous 12.5% discount (2.5% booster + 10% liquidation discount).

How did we arrive at that number? The total liquidation discount is calculated the following way:

RASAL = Risk-adjusted supplied assets by the liquidator

RADV = Risk-adjusted debt by the violator

LiqSurcharge is explained above in this page and in this example is assumed to be 0 for simplicity's sake.

2x is the liquidation booster slope.

The Liquidation Booster is subject to a 2.5% ceiling.

The reasoning behind setting the ceiling at 2.5% is the same as the 20% maximum liquidation discount: preventing the borrowers from overpaying when being liquidated. The 2x slope, on the other hand, is intended to make the liquidators gradually more competitive the more assets they deposit, but not outrageously more competitive to avoid the creation of monopolies.

Use the navigation bar on the left side to find guides for all the primary actions and functions required for governance.

What is an oracle?

Within the context of pricing, an oracle is an on-chain API for price. Differently put, it simply tells you what the price of an asset is at a given time.

Oracle Risk

While we think Uniswap's oracles are best suited for our permissionless lending protocol, depositing into an Euler pool backed by illiquid liquidity pools on Uniswap can lead to devastating results.

For instance, inflating the value of a collateral allows the attacker to borrow an inflated amount of tokens, leading to bad debt. This is the most systemic and widespread attack on lending protocols.

Alternatively, if the Uniswap V3 oracle of the borrowed asset is manipulated to the upside, the attack could trigger liquidations and sweep borrowers' collateral.

Even more of concern is when the attacker can manipulate the asset pricing to the downside. Hypothetically, if the price drops to almost zero, the attacker only needs a small amount of collateral to borrow the entire pool and run away with a hefty profit.

Euler’s Oracle Risk Grading System

Using the tool, we can calculate the cost of moving the TWAP by 20.89% (minimum required to break even on highest-quality assets) up and down over 1 and 2 blocks:

Then, we take the minimum of these 4 values: $469.63 million and assign a rating to it according to this table:

Consequently, UNI/WETH pool safety is deemed high as the minimum cost of attack up and down over 1-2 blocks is > $50 million.

This is displayed on the front-end page of the respective lending pool:

Keep in mind that this is merely an indicative tool and we bear no responsibility for loss of funds.

How to Improve the Oracle Rating?

If you are a project that wants to improve its token's oracle rating and be eligible for higher borrow and collateral factors, it's crucial to provide full-range liquidity to the XYZ/WETH pair on Uniswap V3.

By full-range liquidity we mean providing liquidity from the lowest tick all the way to the highest tick without any gaps in between.

References

Introduction

Protocol Code

Governance can vote to effect change over the Euler Protocol for parameters such as:

1. Default isolated tier borrow factor

2. Collateral and borrow factors of specific assets

3. Inclusion of an asset in the cross and collateral tiers

4. Change in choice of risk parameters and general methodology

On-Chain governance, allows unique features such as delegated voting and proposition powers, as well as protocol (and governance configuration) updates via a time lock executor. This ensures the protocol can adapt to evolving market conditions, as well as upgrade core parts of the protocol over time.

On the other hand, for off-chain governance, there is no code to review or implement as such. It is mainly a call for the Euler Foundation to carry out an action. Issue a grant, or pay a bill, for example. Thus mainly used to aid Euler in making difficult decisions in collaboration with the community.

Process

The flow of the governance process is as follows:

4. This is a necessary step for all types of proposals, and execution will be carried out by Euler Foundation if the proposal is successful.

5. If and only if the proposal includes changes to the smart contract, the proposal will be voted on Tally after Snapshot voting. Execution will be targeting Euler protocol smart contract if the proposal is successful.

It is noteworthy that not all off-chain proposals that are either binding or non-binding on the protocols smart contracts will end up having an on-chain proposal depending on the outcome of the off-chain 'gas-less' voting and for gas cost savings. On the other hand, not all on-chain proposals will require an off-chain counterpart.

Depending on the outcome of an off-chain voting process, an on-chain proposal might be created which will be executed against a target protocol smart contract if successful.

If an off-chain proposal requires an on-chain proposal that will be executed against a protocol smart contract, then the general flow could be as follows:

Creation of a formal Idea/Proposal on Governance forum for discussion → Proposal created on Snapshot (off-chain proposal creation) → Off-Chain Voting → (if on-chain governance is required) eIP (Euler Improvement Proposal) creation on Governance forum by forum moderator → eIP created on Tally (on-chain proposal creation) → On-Chain Voting (and Execution on target Euler protocol smart contract if successful).

Idea

Once a discussion / commenting begins around your idea, be proactive with the community and be open to suggestions. It typically takes a week for the request for comments to mature before it becomes an eIP.

Governance Proposal

A Tally or Snapshot proposal does not always need to be created by the original eIP author / proposer, it can be posted by someone else or by on of the delegates in case the minimum threshold of EUL is not being met.

Governance Launch Phases

Introduction

EulerDAO will kick off in three phases for a guarded launch towards full decentralisation of the Euler protocol. Each phase is described below.

Euler uses the Tally governance dashboard application to manage the governance process. Through Tally, you can set up your wallet to become a delegate, create on-chain proposals, vote on active proposals, discover delegates in the community, and delegate your voting power to a community member.

Phase 1

Should the proposal become successful and executed, the target function will then be executed (via the TimelockController controller smart contract). Once executed, it will emit the proposal description string and proposal transaction data, which will then be validated by the Euler team and executed against the Exec module via the Euler multisig.

Hence, the governorOnly() modifier in the Euler Governance module smart contract will be checking that the caller of its functions is the Euler mulisig and not the TimelockController smart contract.

Examples of the kinds of decisions token holders might vote on include proposals to modify:

• The tier of an asset

• Collateral and borrow factors

• Price oracle parameters

• Reactive interest rate model parameters

• Reserve factors

Phase 2

In the second phase, the governor admin for the Euler Governance module will switch from the Euler multisig to the TimelockController smart contract. Hence, the governorOnly() modifier in the Euler Governance module smart contract will be checking that the caller of its functions is the TimelockController smart contract.

During execution, the TimelockController smart contract will call the target function in the Euler Governance module as specified within the on-chain proposal. Proposers will be able to add a batch of actions / functions to be executed within the Euler Governance module into a single on-chain proposal as well.

Phase 3

In this phase, the Installer Admin will also be switched to the TimelockController smart contract.

Not only giving the community control over the Governance module for asset configuration modifications but also full control over the protocol including the installer module. This module is used to bootstrap install the rest of the modules, and can later on be used to upgrade modules to add new features and/or fix bugs.

Euler's Governance Proposal Creation Tool for Phase 1

Introduction

Should the proposal become successful and executed, the target function will then be executed (via the TimelockController controller smart contract. It will emit the proposal description string and proposal transaction hex data, which will then be validated by the Euler team and executed against the Exec module via the Euler multisig (on OpenZeppelin Defender).

Section 1. Creating the proposal transaction data for Euler’s Exec Module

Step 1

The web application should look like the following image:

Step 2

The tool requires MetaMask to be installed in your browser. Switch your MetaMask wallet to mainnet.

The tool currently supports the Ethereum Mainnet and our Goerli testnet Exec modules. It will create the appropriate transaction data to be executed depending on the selected network.

Step 3

At the top left of the window, we have a text field for proposal description and below that we have a dropdown menu representing a list of tokens, e.g., USDC, DAI, etc.

At the left of the window, under the token list, we have a set of dropdown menus and text fields which will be autopopulated with the current token configurations (if the token has an activated market on Euler).

To create the proposal transaction data, the proposer needs to enter a proposal description and then select a token from the token list. Once selected, the rest of the fields will be automatically populated with the current configuration of the token or market on Euler if it has an activated market.

The image below shows the proposal description and the fields on the left populated with the current market configuration for USDC on Euler:

Step 4

Note: This process can be repeated for multiple tokens and configurations (or multiple configurations of the same token). They will be added in a batch and encoded to form the transaction data for the batchDispatch functionality in the Euler Exec module.

For example, let us select DAI from the token list and change the borrow factor of DAI to 0.3. Again, the fields are automatically populated when we select DAI and when we change the borrow factor to 0.3 and click on CREATE PROPOSAL DATA. The list of configuration updates is updated to reflect the change we are making to DAI, while the USDC update information still remains. The transaction hex is also updated.

Step 5

To validate the updates we have selected, we can copy the auto-generated hex under batch items hex TX data (under batch items, which is under proposal description) and click on DEBUG TX HEX DATA and paste the copied hex into the text field.

The tool should also decode the hex and show us a markdown with the updates the Euler team will be applying to the selected tokens once the proposal gets executed. The Euler team will also follow this process to make sure that the proposal description reflects the updates to be made before executing the transaction in the Exec module on behalf of the community.

As shown in the image above, the hex data is decoded to show the updates we selected to be applied to DAI and USDC. There is a close button at the bottom right of the window to close the debug modal and return to the main page.

Once you get to this point, you now have your proposal transaction data which you can use to create your on-chain proposal on Tally. After the voting period, if successfully executed, the decoded hex data will be submitted to OpenZeppelin Defender for the Euler team to execute on behalf of the community.

Please let us know if you have any questions or feedback while using the tool in our Discord Governance channel.

Section 2.Using the Auto-Generated transaction data for Euler’s Exec Module to Create an on-chain proposal for the DAO on Tally

At this point, we assume you now have the proposal transaction hex data needed for the Euler Exec module’s batchDispatch function. And you want to create the on-chain proposal for members of the community (and delegates) to vote on. If so, please read on!

Below, we will describe the steps required to accomplish this goal.

Step 1

Head over to the EulerDAO dashboard on Tally and connect your MetaMask wallet.

Step 2

Click on Create new proposal at the right corner of the window.

It should then take you to the proposal creation window below.

Click on Continue to move onto the next step (Name your proposal).

Step 3

Enter a proposal title and description and click Continue.

Step 4

In the next section, you will be required to specify the governance proposal actions, i.e., target smart contract, target function and parameters. The Tally dashboard allows you to specify multiple actions in a single proposal which will be called/executed if the proposal is successful and executed.

Step 5

Once done, click continue and review the proposal. Once you are happy, you can click Submit on-chain which will open a MetaMask pop-up window for you to sign the transaction to create the proposal on-chain, via the Governance smart contract.

🚨 If you wish to have a say in governance, you need to delegate your voting power to yourself or someone in the community. Without performing this action, you will not have any voting power which means being unable to create proposals or vote on Snapshot (off-chain) and Tally (on-chain). 🚨

About

In summary, delegates are token holders that have completed a one-time setup process (executing the delegate function of the token to delegate another user or the token holder themselves to enable the governor contract to determine their voting power). Once you become a delegate, you can vote on active proposals, and create proposals if you have enough voting power. If you choose not to directly vote on proposals, you can pass your voting power on to a delegate as well.

The delegate sections below describe the delegation using the EUL token smart contract and via the Tally Governance Dashboard.

Delegate votes from the sender to a delegatee. Users can delegate to 1 address at a time, and the number of votes added to the delegatee’s vote count is equivalent to the balance of EUL in the user’s account. Votes are delegated from the current block and onward, until the sender delegates again, or transfers their EUL. Delegation can be carried out via the smart contract function described below or via the Tally user interface.

Step-by-step

Voting power delegation can be done via Etherscan, Tally (On-Chain) Governance dashboard or programmatically.

Etherscan

2. Click on Contract (shown below) to view the EUL token smart contract code and interact with the contract via etherscan.

3. Click on Write Contract (shown below).

4. Click Connect to Web3 to connect your Metamask wallet which will be used to confirm the delegate transaction. Once connected, you should see your wallet connect on etherscan as shown below.

5. Click on 3. delegate to expand the delegatee address input text field.

7. Click on the blue Write button directly under the delegatee address text field.

8. Finally, regardless of whether you are delegating to yourself or delegating to a delegate, you will be required to confirm the transaction in your Metamask wallet and this transaction will cost gas.

To check the address you are currently delegated to, you can click on the Read Contract tab next to the Write Contract tab and you will be presented with the window below.

Click on 10. delegates (shown below) and paste your address in the text field and click on Query and it should show the address you have set as a delegate. If it shows the zero address, (i.e., 0x0000000000000000000000000000000000000000) then it implies you have not delegated to your wallet or to another address.

You can also check your current voting power.

To do this, click on 14. getVotes (shown below) and paste your address in the text field and click on Query. If you have self-delegated, your voting power should be equal to the number of tokens you hold. If you have not self-delegated, or if you have delegated to another address, the query will return zero voting power.

Tally (On-Chain) Governance Dashboard

2. Click on Delegate vote at the top right corner of the screen.

If you choose to delegate to an address or delegate, the following screen will be shown instead where you can enter the address you wish to delegate your voting power to.

This will not transfer any of your EUL tokens to the delegate, but rather only delegate all your voting power, i.e., you will be voting via a delegate or proxy who will be voting on your behalf or representing you at the polls!

You can always change the delegate later on or delegate to yourself again. This helps to ensure that there is a good degree of participation from the community on on-chain governance proposals voting.

4. Finally, regardless of whether you are delegating to yourself or delegating to a delegate, you will be required to confirm the transaction in your Metamask wallet and this transaction will cost gas.

To recap, delegates are token holders that have completed a one-time setup process. Once you become a delegate, you can then vote on active proposals, and create proposals if you have enough voting power. If you choose not to directly vote on proposals, you can pass your voting power on to a delegate as we have seen.

Programmatically

For developers who wish to interact with the EUL token smart contract directly, the EUL contract has a delegate function defined with examples on how to interact with it shown below.

• delegatee: The address the sender wishes to delegate their votes to.

• msg.sender: The address of the EUL token holder that is attempting to delegate their votes.

• RETURN: No return.

Solidity

Web3.js

About

This guide describes how to get started with writing a governance proposal, firstly on the forum followed by a proposal on Snapshot (off-chain) or Tally (on-chain).

Step-by-step

For consistency, the following proposal structure is advised:

Proposal Structure

• Title: [Enter Proposal Title]

• Author(s): [enter name(s) of associated authors]

• Related Discussions: [paste link here]

• Submission Date: [Enter Date]

Body Paragraphs/Sections:

• Simple Summary: Give the community a TL;DR on your proposal; no more than 2-3 sentences.

• Abstract: Introduce and expand on the proposal. Highlight key points on how the proposal will improve stakeholder/token holder experience, protocol performance, and the overall implementation process.

• Motivation: What problems will this proposal address/solve? What’s the value-add?

• Specification: Answer key relevant question to the protocol.

1. What is the link between the eIP author and the asset?

2. Provide a brief description of the asset

3. How is the asset primarily used?

4. Explain why the eIP would benefit Euler’s ecosystem?

5. Where does the asset trade?

6. What are the volumes and market capitalisation?

7. What is the liquidity like in the Uniswap V3 liquidity pool versus ETH?

8. What security/auditing reports have been done?

• Risk Assessment: Give evaluation of the risk parameters involved with the proposal

1. Oracle grading

2. Decentralisation

3. Volatility

4. Liquidity

5. Smart Contract Risk

• Voting: Define what a “yes” and “no” vote entails. If there are any Snapshot votes or forum polls associated with this proposal, please attach them.

2. Governance Proposal (on-chain or off-chain)

If the RFC is well-formulated and the community has a clear understanding of the proposal and supports your RFC, it will be moved by a mod to the governance category as an eIP: Euler Improvement Proposal. Please note that it usually takes a week (7 days) for a proposal to be moved from RFC to the eIP stage. Once an eIP has been assigned, the proposal can then be created on Snapshot or Tally using this eIP.

A Snapshot or Tally proposal does not always need to be posted by the original eIP author, it can be posted by someone else or one of the delegates in case the minimum threshold of EUL is not being met. The proposal on Snapshot or Tally should always have the link to the eIP attached. The parameters of the poll (Yes, No, different options for values) need to mirror the options discussed in the eIP.

Proposals that are rejected due to invalidity or insufficient support can be resubmitted. Approved proposals with sufficient support via governance/voting will be implemented by the Euler Foundation.

Introduction

While we eventually plan to move to a reactive interest rate model that will optimise for utilisation, we start off with a standard kink model. The parameters of our kink model are:

1. Base IR (APY when utilisation is 0%)

2. Kink IR (APY when utilisation is exactly Kink%)

3. Max IR (APY when utilisation is 100%)

4. Kink% (Percent utilisation where kink occurs)

The main consideration is maintaining target utilisation (typically at Kink%).

*stETH (current Lido staking APY)

Introduction

Table 1 | Collateral, borrow, and reserve factor parameter settings on Euler_._

Note: the Collateral Factor of the lent asset(s) is multiplied by the Borrow Factor of the borrowed asset(s) to arrive at the final factor.

For example, if you lend 1,000 USD worth of USDC, you can borrow UNI in line with a final factor of 0.648 (0.90 x 0.72). Hence, 648 USD worth of UNI.

Alternatively, if you lend 500 USD worth of USDC and 500 USD worth of WETH, your risk-adjusted collateral value is (500 x 0.90) + (500 x 0.88) = 890 USD. If you were to borrow UNI, you could borrow 890 x 0.72 = 640.8 USD worth of UNI.

Note that if you borrowed less UNI, for example 500 USD worth, you could still borrow additional UNI or a cross tier asset like LINK against your risk-adjusted collateral before hitting the threshold.

Lastly, please note that the risk factors list will be periodically updated. If a token/market is activated on the DApp but not listed, please check back later for an updated list.