Euler Finance；a non-custodial lending and borrowing protocol on Ethereum Network

Euler finance is a revolutionary non-custodial, defi lending protocol that seeks to democratize lending through permissionless and risk mitigating protocols.

One vital aspect of the crypto space that Decentralized Finance is tackling is lending and borrowing. Previously, the centralized parties that handled this critical aspect of finance were largely permissioned and trusted third parties. These entities charge exorbitant fees and impose demanding requirements and restrictions that make the process stressful and time-consuming.

However, De-Fi lending protocols like Euler Finance have provided a solution to this. They are replacing the mediators with trustless and permissionless lending running on smart contracts deployed on blockchains. Consequently, borrowing and lending have become cheaper and more efficient.

Euler finance takes Defi lending and borrowing to the next level by incorporating permissionless listing, reactive interest rates, multi-collateral stability pools, and more.
The lending protocol was founded by three leaders, Dr. Michael Bentley, Doug Hoyte, and Jack Prior, co-founders with different backgrounds in finance, programming, and web development.

Euler XYZ, the company behind the decentralized platform, won the Spark University Hackathon run by Encode Club, where it raised 800k in a seed fund. Additionally, it went on to raise $32 million in another funding round early this month.

The non-custodial lending protocol seeks to democratize assets for borrowing and lending in a risk-curbed environment with less volatility than most. Read further to learn about this protocol.

Keywords; Euler Finance, Michael Bentley, Euler FAO, Next generation defi lending platform, decentralized finance, WETH, Uniswap V3, Euler XYZ, permissionless, asset tiers.

Euler Finance Explained

---

Euler seeks to democratize the assets that people can borrow and lend. This means that Euler finance is a platform that offers lenders and borrowers permissionless, trustless, and seamless lending services in the crypto space. The platform employs smart contracts and various risk mitigating features to provide low volatility liquidity to borrowers and passive income to lenders.

Euler was launched in late September by three individuals; David Bentley, a former Royal Bank of Scotland pricing analyst with a history in evolutionary biology. There is also Doug Hoyte, co-founder and blockchain Developer who is a programmer, author, teacher, and specialist in Network security and fin-apps. And finally, Jack Prior, the full-stack dev. Jack has worked with notable names in finance like Qadre and Salary Finance.

In 2020, Euler finance came first in the Spark university hackathon held by Encode Club, a university blockchain developer community. It raised a seed funding of $800k at the onset and later announced another funding round of $32 million in June this year.




Features of The Euler Protocol

---

Euler followed in the footsteps of 1st generation lending protocols like Aave and Compound finance. However, it addressed the problems those flagship platforms had, particularly with volatile and illiquid assets, with its unique features addressed below;

1. Permissionless Listing: Euler literally allows anyone to list any asset on the platform so long as it has a WETH pair on Uniswap v3. This contributes to the decentralization of the protocol.

2. Asset Tiers: Instead of treating all available assets the same way, Euler has partitioned all assets listed on the platform into three tiers based on risk. This enables the protocol to maximize capital efficiency while mitigating risk. The tiers are:

- Isolation Tier: assets in this first tier can only be used for regular borrowing and lending for strictly one type of asset in a collateral pool. Furthermore, isolation Tier assets cannot serve as collateral for borrowing other assets.

- Cross-Tier: This next level is just like the isolation tier, except that it can borrow more than one type of asset in a collateral pool.

- Collateral Tier: Assets in the final tier, like their name implies, facilitate collateralization in addition to the functions of the other two tiers.

Assets in each tier can only relate to assets within its tier or those in lower tiers. In this way, Euler contains risk so that assets with higher volatility will not affect the whole collateral pool in the case of a crash. Additionally, holders of the Euler DAO token, EUL, can vote on proposals to move assets up the tier ladder, although this comes with risks despite improving capital efficiency.

- Reactive Interest Rates: Euler employs control theory to guide borrowing costs and achieve capital efficiency while reducing the need for governance interventions.

- Liquidations that are MEV-Resistant: Unlike the traditional fixed deposit discount first-generation lending protocols like Aave used to incentivize liquidators, Euler has an MEV-resistant technique. The defi platform instead raises the discount based on how underwater the collateral position is in a dutch auction format. In addition, Euler Finance offers liquidity providers discount boosters which help them profit from the dutch auction before miners and front runners who might try to manipulate transactions.

- Collateral protection option: Euler gives lenders the option of withholding their collateral from the borrowing pool while it is still on the platform. This way, users don’t have to give up their positions just because they are not yet ready to lend. Collateral protection also mitigates risks of short selling, governance manipulation, and other trading risks.

- Multi-Collateral Stability Pools: Lenders on Euler can deposit their eTokens into a stability pool from which liquidations are processed directly while the lenders earn passive interest. It saves them the stress of slippage, exchange fees, Volatility, and incompatible exchange rates that spring up in using a third-party exchange for liquidations.

- Soft Liquidations and Deferred Liquidity Checks: Soft Liquidations enable borrowers to balance their loan-to-value ratios by liquidating only a portion of their position. In contrast, deferred liquidity checks allow users to pile several borrowing actions in a sequence that will only go through a liquidity check at the end. That way, actions that may not be possible alone can be combined to make sense in one liquidity check. Once again, these features are unique to Euler Finance.

- Optimization of Gas Fees: Euler uses a transaction builder to enable users to pile several transactions together to save transaction costs.

- Decentralized Price Oracle: the lending platform employs Uniswap v3’s time-weighted average price (TWAP) oracle, which is decentralized. Hence the protocol can detect Users' liquidity in real-time.

- User-Friendly Interface: Anyone who has used other defi platforms can easily navigate the Euler finance platform.

- Reserves: Euler hedges against bad debt and bank runs by reserving a balanced part of its revenue as a backstop for users.


Euler DAO

---

Euler’s governance token is EUL, an ERC-20 token that gives holders a stake in decisions concerning the protocol. EUL holders get to vote and raise proposals on issues like:
- Which assets belong on a tier
- Parameters of deciding reactive interest rates
- Parameters of the price Oracles
- Governance issues
- Collateral and borrowing details
- Reserve considerations


How To Use The Platform.

---

Actions that are possible on the Euler Finance platform include:
- Deposits
- Borrowing
- Repaying
- Minting of self-collateralized loan positions.
- Burning of Sel-collateralized loan positions
- Transferring eTokens and dTokens
- Short and Long
- Wrapping
- Activating assets and
- Allowances

Users can perform any of these actions on the platform by:
- Connecting and activating their wallets.
- Following the instructions that pertain to their preferred action here.


Closing Thoughts

---

Euler finance uses permissionless decentralized and permissionless protocols to democratize finance while significantly reducing the risks associated with decentralized finance. The unique features on the platform address the problems associated with first-generation defi lending, providing feasible solutions. Innovative features like reactive interest rates, asset tiers, Dutch auction-type liquidations, and much more have earned Euler finance the tag of the next generation of defi lending.







Author: Gate.io Observer: M. Olatunji
Disclaimer:
* This article represents only the views of the observers and does not constitute any investment suggestions.
*Gate.io reserves all rights to this article. Reposting of the article will be permitted, provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.