Euler: The Next-Gen DeFi Lending Protocol
Before diving deeper let’s first understand what DeFi is.
DeFi stands for Decentralised Finance, which is considered to be proof of different financial activities like investing, lending, trading, etc. which can be done primarily on public blockchain technologies like Ethereum.
It is very famous because of its trait of being faster and providing a clear peer-to-peer network.
DeFi lending is known for being a peer-to-peer service provider, it is also trusted because of its feature of not involving any third party in any of the activities.
This fast and speedy process of the whole lending and borrowing featured by DeFi is global and removes the unwanted fees charged by third parties.
Compound and Aave were among the first platforms working on the whole idea of DeFi. These platforms were used to better handle different financial activities but they had no control over the activities situated with the liquid assets, the drawback was their inability to handle the risks associated with volatile investments.
Apart from the risk-handling inability, they were not even able to handle the increasing market volume and vastly increasing number of sheer users, this was the point when the developers thought of coming up with a new platform which has all the above-mentioned drawbacks as its strengths and works efficiently in all the cases. So, you must be wondering what this new platform is and why it is so special. Let’s take a look into the troughs of this topic.
There were many difficulties related to the voluminous risks in the market, lending and borrowing protocols, dedicated asset handling due to the permission listing system and unmanageable trading size. All these factors were the roots of the discovery of this very platform.
This new platform was broadly termed Euler Finance as it was built keeping in mind all the market risks analysis as well as the different scenarios balancing the customer needs and trading volume.
This platform got its name after the great mathematician Leonhard Euler who is known for his many contributions and discovery of crypto graphs. Euler Finance is basically a lending platform which works on the Ethereum network and works for decentralised finance.
Euler XYZ was the company behind the development of Euler Finance. The company's motive was to provide a large number of users with one of the best platforms where you can easily lend or borrow ERC20 assets of crypto.
This service readily became famous for many of its features, the important ones among them being:-
Euler with the help of its Uniswap v3 core dependency, lets the users know the assets list and allows them to add the assets which concur with the WETH pair under the lending title.
Now, you must be wondering why it is permissionless pricing since permissionless pricing is very risky in terms of decentralised currency. Let’s see Euler’s resolution towards this problem.
To mitigate these risks and safeguard the protocol and its user, Euler employs three risk-based asset tiers:
This layer of assets can be used as collateral and for regular lending and borrowing as well as cross-borrowing. It is one of the safest and used assets in the market.
These assets can be borrowed with other assets but cannot be used as security to borrow other assets. They are accessible for regular lending and borrowing.
Can be utilised for regular lending and borrowing doesn’t pledge as collateral to borrow additional assets. Known as the Isolation tier as they can only be borrowed separately.
The Borrowing and Crypto Lending Protocol:
This protocol contains a cycle where the user deposits money in the pool and gets E20 tokens in return for these deposits, which you can use at any time in return for your root deposits. This whole protocol contains different smart contracts and user-friendly policies.
Now, let’s take a look at the different components involved in this cycle.
The creation of derivative products containing debt obligations is possible using the dToken interface, which enables the formation of positions without requiring interaction with the underlying assets.
Protected Collateral Crypto:
This one is one of the most important features of Euler, where you must have your collateral but Euler won’t necessarily allow them for lending. It works on providing your safe money with no risk, i.e. your funds from the protected status will neither earn profits nor fall for loss.
It also allows the users the governance of voting for the assets.
Balanced Borrowing Capacity:
Euler has a balanced and risk-adjustable borrowing protocol, which has its users in control so that they ensure keeping the value of their collateral high. To arrive at a "risk-adjusted liability value," Euler takes a two-pronged approach by increasing the market value of a borrower's liabilities.
Users of Euler have access to a feature that lets them postpone performing liquidity checks. This capability enables users to conduct multiple actions while only performing the liquidity check once at the very end.
Apart from the above-mentioned features, you can also see a lot of other features like flexible liquidations where you liquify easily liquefy a small portion of your investments without subjecting the whole lot to liquefaction which enhances the stability of the assets, as well as Euler, also promises you stability in terms of pooling in liquefaction.
Now, moving ahead we will discuss something which is an essential yet a very new topic in Euler’s field, Borrow Factors Euler Finance, which consequently means, you must be at least 4 times over collateralized when borrowing default assets. If you borrow money against an asset with a lower collateral factor, the factor is even more cautious.
To avoid bad debts, conservative over-collateralization is used.
The proven effective governance model of Compound has been implemented by Euler, which offers more creative benefits. Users may mint and burn in addition to lending and borrowing, which enables them to build leveraged positions of depositors and borrowers. Additionally, users will be able to trade tokens by integrating Uniswap v3 and 1inch DEX.
In comparison to DeFi, Euler offers more original, sophisticated, and creative mechanics. Time will tell if Euler's approaches are durable and if the network can show to be a better progression in the DeFi lending scene, even if it has many advantages and appears to operate in a superior manner.