TBW - Analysis: How Euler (EUL) Positions Itself Between Aave and Morpho

What you need to know

Euler is a lending protocol that experienced a $197 million hack on 13 March 2023. Despite this, the team has continued to develop a new version of the protocol, accompanied by 10 security audits, enabling the creation of fully customisable lending markets.

Since its launch in September 2024, Euler V2 has seen remarkable growth in excess of $1 billion deposited on the protocol, far beyond what Euler V1 had achieved.

Overview

Euler is an infrastructure on which anyone can create customised lending and borrowing markets.

In the case of legacy lending protocols, such as Aave, the protocol's DAO governs the risk parameters of individual loan markets, whereas Euler allows any risk management professional to create their own market with their own risk profile, allowing more choice for lenders and borrowers and making it easier to integrate new assets.

Vaults are the basic unit of the Euler protocol and can serve three functions:

• Lend assets to borrowers, generating a passive return.
• Serve as collateral to borrow from other vaults.
• Lend and serve as collateral at the same time (rehypothecation), to maximise capital efficiency.

In contrast to other protocols where a single asset is directly lent or borrowed, Euler's vaults can contain multiple types of tokens, allowing collateral to be pooled and reused in a more flexible way. This makes more complex arrangements possible, such as borrowing with a basket of assets or reusing collateral already committed in another loan. It's a more flexible system, but also more technical, aimed more at experienced users or protocols looking to build bespoke financial products.

A market is made up of at least two interconnected vaults. Curators can therefore create more or less complex markets as they wish. Euler's flexibility means that most other lending protocols can be recreated on top of its infrastructure.

Technology and security

As mentioned earlier, Euler's technology is distinguished by its modularity and sophistication. The protocol aims to offer great flexibility for users and developers wishing to build customised financial products.

On the security side, Euler has been audited by several reputable firms and benefited from solid formal guarantees, including the use of fuzzing tests and stress simulations. However, the March 2023 hack revealed that even a well-audited protocol could be vulnerable to poorly anticipated complex interactions.

Since then, Euler has strengthened its code review process, improved its transparency and put in place more rigorous governance practices to prevent similar flaws. The incident was a reminder that technical sophistication, if poorly managed, can increase the attack surface.

Financing

In total, Euler has raised $40.8 million over three rounds of funding.

Seed Round (16 December 2020): raising $800,000, led by Lemniscap, with participation from Divergence Ventures and CMT Digital.

Series A (August 2021): raising $8 million, led by Paradigm. Seed round lead investor Lemniscap also participated, alongside angel investors Anthony Sassano (The Daily Gwei), Ryan Sean Adams (Bankless), Kain Warwick (Synthetix) and Hasu (Uncommon Core).

Series B (June 7, 2022): raised $32 million, with participation from Jump Capital, FTX Ventures, Variant and Coinbase Ventures.

Team

Michael Bentley is the co-founder and CEO of Euler Labs. Prior to founding Euler, Michael was a postdoctoral researcher in mathematical biology at Oxford University.

Brandon Neal is the Chief Operating Officer (COO) of Euler Labs. Prior to joining Euler Labs, Brandon worked at the Federal Reserve Bank of New York, where he gained significant experience in the traditional financial sector.

Community Support

Euler has 56,000 followers on X and 27,000 members on Discord. Since the beginning of 2025, between 200 and 600 different addresses have used Euler every day.

Euler's activity on GitHub reflects a serious and professional approach to open source development. Prior to the March 2023 hack, the main repository showed sustained activity, with regular commits, relatively comprehensive technical documentation and a focus on automated testing. Contributions were mainly made by a small team of in-house developers, which ensured some consistency in the code, but also limited external input.

After the incident, activity slowed, reflecting the protocol's downtime, then gradually picked up again with updates focused on security, governance and transparency.

However, unlike projects such as Aave or Morpho, which have a large community of contributors and a growing ecosystem, Euler's GitHub remains relatively closed and technical, with little community participation, which may limit its resilience and capacity for long-term innovation.

The token

EUL is Euler's governance token.

The total supply of EUL tokens is 27,182,818, in tribute to the number of Euler e.

At the TGE in November 2021, the breakdown of tokens was as follows:

25.85% to private investors

25% to Euler protocol users, spread over 4 years

20.65% to Euler Labs employees, advisors and consultants

13.83% allocated to Euler's treasury

9.67% allocated to Euler's partner protocols

4% granted to Encode, incubator of the project in its early stages

1% allocated to all users who deposited or borrowed assets during the progressive launch of the protocol

All of these tokens have completed their vesting period, apart from the allocation reserved for the team whose vesting will end on 1 January 2026. The majority (66% of the tokens) are therefore already in circulation, which limits the selling pressure associated with unlocks.

Economic model

By default, 10% of the borrowing interest accumulated in the vaults is deducted in the form of fees. These fees are split equally between the vault governor and the DAO Euler.

The portion destined for the DAO is sent to a fee auction called Fee Flow where users bid to collect these fees. These auctions use the EUL token as the auction currency, ensuring that the fees generated by the protocol are systematically converted into EULs, creating buying pressure on the EUL. EULs collected in this way are currently sent to the DAO, but it is possible to change this with a governance vote.

In addition to this, Euler's DAO governs two markets on its own infrastructure: Euler Prime and Euler Yield which are additional sources of revenue.

An important area of growth for Euler is the development of exotic loan markets through third-party projects such as Usual Stability Loan, set up by Usual. Euler's infrastructure allows other protocols to easily create very specific markets according to their needs.

Euler is therefore both a lending infrastructure that provides a service to other projects by simplifying their deployment of personalised onchain loans, but is also an organisation that manages its own money markets on this same infrastructure. Euler's two businesses are thus complementary and mutually reinforcing.

In the medium to long term, Euler can create sustainable comparative advantages if it succeeds in attracting sufficient liquidity to its markets and creating interconnections between them where possible in order to maximise capital efficiency and offer more competitive rates than the competition.

Cash and financial health

The DAO has cash of $39 million, the majority of which is in tokens EUL.

Euler faced a complicated situation, as the protocol is quite old and had already used some of its tokens to incentivise the growth of Euler V1. When Euler V2 was launched, the project did not have a large quantity of tokens to distribute, unlike more recent protocols. What's more, the value of the token had fallen sharply following the hack. The project therefore had to carefully measure its new incentive expenditure to ensure that it created higher revenues.

Euler V2 distributes its incentives in the form of rEULs, which are EUL tokens locked for 6 months to give the protocol time to grow and accumulate revenues. It is possible to track all of Euler V2's incentive spend on this site.

According to TokenTerminal, over the last 365 days the project has generated $5.3 million in fees, of which $632,300 has gone into the protocol. Bear in mind that Euler V2 only launched in September 2024 and revenues have continued to grow ever since.

Partnerships and ecosystem

The vast majority of Euler's activity takes place on Ethereum, but Euler is also present on Base, Sonic, Berachain, BOB and Swellchain. The way Euler works means it can easily deploy its infrastructure on new blockchains without necessarily having to complicate its risk management.

Many protocols build on Euler:

• Usual has built its Usual Stability Loan (USL) on Euler's infrastructure. This vault makes it possible to borrow USD0 at a fixed rate using USD0++ as collateral.
• Bunni has created an AMM that deposits unused liquidity on lending protocols including Euler.
• Alchemyx, a lending protocol where interest pays itself, plans to build its V3 on Euler's infrastructure.
• Twyne is building a way to delegate unused borrowing capacity to maximise capital efficiency.
• Flower aims to create a platform for projects to create liquidity agreements to attract sustainable TVL to seed their protocol. On top of this will be built a USDC tokenised vault, which will provide fixed-rate lendable USDC liquidity to these platforms.

>> Usual: Two months after the controversy, where does the project stand?

Limits / risks / controversies

In March 2023, Euler Finance suffered a major hack resulting in the loss of nearly $200 million, due to a flaw in its liquidation mechanism exploited via flash loans. After successfully negotiating the full return of funds from the attacker, the Euler team suspended the affected contracts, strengthened its security audits and launched a recovery plan to restore confidence.

It also improved the transparency of its governance and committed to a thorough review of its deployment processes. As evidence of its resilience, its TVL is now well above pre-incident levels.

Euler needs to carve out a place for itself within the lending protocols, which is a highly competitive sector with strong network effects. The project cannot rely on huge incentive campaigns like some of its competitors and so has to be careful with its expenses.

Euler's TVL growth has been largely due to the Usual Stability Loan, which accounts for $414 million of TVL out of the $1.02 billion deposited on the protocol. So there is a form of dependency.

>> "We're back": One year after the hack, the exclusive interview with the CEO of Euler Finance

Regulatory compliance

There is no specific regulation regarding Euler's business as DeFi is not yet regulated.

>> Regulation of DeFi: what framework and timetable in Europe?

Competition

Aave is the largest lending protocol with $28.5 billion in TVL. Future developments of the protocol aim to make it more modular and integrate different degrees of seniority with lenders.

Morpho is the second largest lending protocol with $4.75 billion in TVL. It is the protocol whose operation is closest to Euler since they are both infrastructures on which anyone can create their lending markets.

However, there are a few differences between Morpho and Euler:

• Morpho favours a minimalist first layer of infrastructure, whereas Euler's is more complex but facilitates more customisation on its markets.
• Morpho is more focused on lending markets without rehypothecation while Euler facilitates it.
• Morpho does not currently manage markets on its own infrastructure while Euler has two, so the former wishes to be purely infrastructure while the latter adopts a hybrid approach.

Euler must therefore succeed in establishing itself despite these two projects dominating the lending sector for the time being. This will surely happen thanks to the proliferation of exotic markets such as Usual's USL.

In addition, Euler offers a liquidation system that is advantageous compared with the way its competitors currently operate: a Dutch auction guarantees that the bonus awarded to liquidators is always just enough to make the liquidation profitable. This offers a fairer liquidation price for borrowers and reduces the risk of "bad debt" for lenders as the liquidator captures less value that is used to repay the debt.

>> Lending onchain: market state, trends and prospects

Roadmap

Euler continues to roll out new channels such as Avalanche. The project appears to be adopting a strategy that prioritises channels that offer it incentives in order to facilitate its growth.

Euler Swap is currently in development and should be launched in the coming months. The idea is to enable the liquidity present on the protocol to also be used for swaps, thus further enhancing capital efficiency.

Where can it be bought?

Euler can be obtained on Kraken or on the Ethereum blockchain, on which it is recommended to use a DEX aggregator such as Odos, 1inch or CowSwap.

The Big Whale's view

Euler has managed to rebuild after its V1 hack and even far exceed previous TVL levels achieved. This demonstrates resilience on the part of the project team.

The lending sector has significant network effects, so it's complicated for new entrants to take market share and maintain themselves. Thanks to its highly flexible architecture, Euler has the opportunity to take advantage of this by enabling the creation of new types of onchain lending markets.

In addition, Euler's hybrid approach allows it to both let other risk managers create their lending markets while also letting the DAO manage its own, and thus increase the protocol's revenue streams through two complementary activities.

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