Chainfeeds Introduction:
Euler's modular architecture can cover the risk appetite from institutions to retail investors. At the same time, with its built-in liquidation mechanism, product experience, data growth, multi-chain expansion capabilities, and future AMM design, Euler has the potential to become an indispensable infrastructure in DeFi.
Article Source:
https://x.com/wmt_ventures/status/1912925641567346716
Article Author:
Wintermute Ventures
Perspective:
Wintermute Ventures: Currently, the on-chain lending market can be roughly divided into three architectural models: Monolithic, Isolated, and Modular. Monolithic protocols offer limited asset selection, strict collateralization ratios, and high liquidation penalties. While helping to improve capital efficiency (such as allowing collateral reuse and re-collateralization), adding new assets requires governance procedures, resulting in low flexibility. Isolated markets (such as Compound v3, Morpho Blue) allow more flexible asset portfolios but sacrifice liquidity aggregation and re-collateralization capabilities, leading to reduced capital efficiency. These structural inefficiencies are forcing traders to turn to CeFi or perpetual contract platforms, indirectly compressing DeFi's yields and liquidity base. Euler v2 addresses these issues with a modular architecture, aiming to build the core liquidity layer of DeFi. Euler v2 is a highly modular DeFi lending infrastructure. It breaks down lending markets into minimal components and, through a module assembly mechanism, allows the construction of lending markets that meet various risk appetites: Ethereum Vault Connector (EVC) enables mutual recognition and interconnection of multiple vaults, allowing existing deposits to be used as collateral assets for other vaults. Euler Vault Kit (EVK) supports any user to create new vaults without permission, with customizable risk parameters and the option to retain governance rights. This design is not only more flexible than traditional protocols but also provides a broader market construction space for users with different needs, such as conservative institutions or high-yield seekers. Euler's vaults can recognize each other's deposits as collateral: when a new vault goes online, it can inherit the TVL of the old vault, speeding up its launch. Old vaults gain additional utility by being reused by new vaults, encouraging more funds to be deposited. This mechanism creates a positive flywheel effect, improving overall capital efficiency. Currently, the average utilization rate of all Euler vaults is around 47%, far higher than the industry average, validating the capital efficiency advantages of its architecture. Euler v2's liquidation mechanism is extremely efficient, defaulting to the v1 reverse Dutch auction mechanism: this mechanism ensures that liquidation prices are close to execution costs, with higher fees for small positions and lower fees for large positions; it avoids excessive liquidation fees and MEV behavior; there are no additional liquidation cuts (unlike some protocols that set liquidation surcharges to increase revenue); additionally, vault creators can customize liquidation mechanisms to adapt to different scenarios. [Original text was in English]
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