Are you facing these challenges?

• "I use Aave and Compound, but new tokens are rarely listed..."
• "I want to manage my assets in DeFi, but I'm worried about the risk of hacking..."
• "I want to manage my assets with better capital efficiency and according to my own risk tolerance!"

If even one of these applies to you, this article is for you. The next-generation lending protocol Euler, which has defied the conventions of DeFi and risen like a phoenix from one of the largest hacks in history, may be the solution to all your problems.

By reading this article, you will understand why Euler is called not just another lending service, but the very future of DeFi.

The history of DeFi lending was pioneered by great innovators like Aave and Compound. However, these protocols adopted what is known as a "monolithic" structure. This is like putting all your eggs in one giant basket. While it is capital-efficient, it carries a fatal risk: if one egg (asset) goes bad, it can affect the entire basket.

In fact, this very structure was the cause of Euler V1's massive hack in March 2023.

Evolution from Despair: The "Modular Structure" of V2

Learning from this major failure, Euler adopted a completely new approach in V2: the "modular architecture."

This system prepares independent small rooms called "Vaults" for each asset, completely isolating their respective risks. It's designed like a condominium with fireproof shutters; even if a problem occurs in one room, the fire will never spread to others. This "risk isolation" is the cornerstone of Euler V2's security, born from the lessons of the past.

This innovative structure is built on two key components.

① The Magical Toolbox for Creating Your Own Financial Market: The Euler Vault Kit (EVK)

The EVK is truly the "LEGO blocks of finance," allowing anyone, permissionlessly, and freely to create their own lending and borrowing markets (Vaults).

Developers can design all the rules of their market, from the interest rate model and loan-to-value (LTV) ratios to the price oracles used. This creates a fertile ground for a diverse range of financial products that were previously unimaginable in DeFi.

• Governed Vaults: Safe for beginners, where a professional team adjusts risk parameters according to market changes.
• Ungoverned Vaults: For advanced users who value transparency and predictability, where the rules are immutable once deployed.

Euler doesn't impose a single "right way." Instead, it embodies the true spirit of decentralized finance by allowing "you to choose the risk management that suits you best."

② Connecting Isolated Markets to Maximize Capital Efficiency: The Ethereum Vault Connector (EVC)

Simply isolating risk would lead to fragmented liquidity, with each market's funds becoming siloed. This is where Euler's "secret sauce" comes in: the "Ethereum Vault Connector (EVC)."

The EVC acts like a secret tunnel connecting the independent Vaults. This allows assets deposited in one Vault to be reused as collateral in a completely different, new Vault.

This is revolutionary. There's no need to raise funds from scratch every time a new market is launched; existing, massive liquidity pools can be leveraged instantly. As a result, Euler V2's capital utilization rate (how effectively deposited assets are being used) has reached an astonishing ~85%. This figure far surpasses Aave V3 (~57%) and Compound V3 (~38%), meaning your assets are constantly working for you efficiently, without sitting idle.

Euler's history cannot be told without mentioning the ~$200 million hack in March 2023, one of the largest in DeFi history. The protocol suffered a devastating blow from a sophisticated attack that exploited a flash loan mechanism.

But this is where Euler's true strength was revealed.

The Unprecedented Full Recovery and Lessons for V2

In a desperate situation, the Euler team did not give up. Through persistent negotiations that involved dialogue with the attacker, collaboration with law enforcement, and bounties, they achieved the unprecedented feat of recovering the full amount of the stolen funds.

This incident left deep scars on Euler, but it also taught invaluable lessons: the dangers of a monolithic structure and the philosophy that "security takes precedence over everything else." This spirit is strongly reflected in the design of V2.

"Are They for Real!?" The Impenetrable Multi-Layered Defense Security

To regain the trust it had lost, Euler V2 implemented industry-leading security measures. Their thoroughness is nothing short of obsessive.

• Huge Budget: Invested approximately $4 million in security measures alone.
• Exhaustive Audits: Underwent over 40 comprehensive code checks from more than 16 top-tier audit firms in the industry.
• Large-Scale Public Competition: Held a competition with a $1.25 million prize pool, inviting hackers from around the world to find vulnerabilities. No critical flaws were found.
• Mathematical Proof of "Absolute Safety": Using a method called "formal verification," they mathematically proved that the vulnerability that caused the V1 hack could never occur again.
• Permanent Bug Bounty Program: Ensures ongoing safety with a bug bounty program offering rewards of up to $7.5 million.

What was once its greatest weakness has now been transformed into Euler's greatest strength. This comeback story is the ultimate proof of why Euler is regaining the trust of so many users.

Even superior technology cannot be sustained without a solid economic foundation. Euler's native token, "EUL," features an ingenious mechanism that links the protocol's growth directly to the token's value.

At its heart is the "Fee Flow Auction."

1. Fees Accumulate: When users lend and borrow on Euler, fees (in USDC, ETH, etc.) are collected by the protocol.
2. An "Auction" for Fees is Held: This accumulated pool of fees is periodically put up for auction.
3. Bidding with EUL Tokens: To participate in this auction and win the fees (USDC, ETH, etc.), you can only bid with EUL tokens.
4. Returned to the DAO: The EUL used for bidding is sent to the treasury of the DAO (the project's governing organization).

The brilliance of this system is that the more Euler is used (i.e., the more fees it generates), the more organic buying demand is created for EUL tokens from those who want to acquire that treasure (the fees).

This is a sustainable and organic value-accrual mechanism that sets it apart from simple buybacks. It provides a powerful incentive for participants who believe in the project's success to hold EUL.

We've explored the fascinating aspects of Euler. What are your thoughts?

Euler is not just another lending protocol with high yields.

• It is a "living textbook" where you can experience cutting-edge architecture.
• It is a "story of resurrection," reborn stronger after learning from a devastating failure.
• It is a "sustainable economic sphere" where the protocol's success is returned to its participants.

Engaging with Euler goes beyond speculative activities. It is a unique opportunity to feel the pulse of where DeFi is headed, and to learn, experience, and become a part of the future financial system.

If you feel that the current DeFi landscape is lacking something and you're ready to take the next step, we invite you to explore the world of Euler. An exciting experience awaits that will dramatically sharpen your understanding of DeFi.

Now, won't you join the DeFi revolution?