Euler is a non-custodial, permissionless lending protocol built on Ethereum. It enables users to generate interest from their crypto holdings or hedge against volatile conditions, without relying on a trusted intermediary.

Euler is made up of smart contracts running on the Ethereum blockchain and can be interacted with by anyone who has an internet connection. The protocol is directed by holders of its native governance token, the Euler Governance Token (EUL). Euler is fully non-custodial, so users keep control of their own funds.

Lending and Borrowing

When lenders add funds to a liquidity pool on Euler, they receive interest-bearing ERC20 eTokens. These eTokens can be redeemed for the lender’s portion of the underlying assets in the pool at any time, provided there are still tokens in the pool that have not been borrowed (similar to Compound's cTokens). Borrowers withdraw liquidity from a pool and repay it with interest, causing the pool’s total assets to increase over time. As a result, lenders earn interest because their eTokens redeem for a growing amount of the underlying asset.

Tokenised Debts

In a way similar to Aave’s debt tokens, Euler represents debts using ERC20-compatible ERC20-compliant token interfaces called dTokens. The dToken design makes it possible to form positions without directly interacting with the underlying assets, and it can also be used as a building block for derivative products that incorporate debt obligations.

Rather than using non-standard mechanisms for moving debt, Euler relies on the standard ERC20 transfer/approve approach. The permissioning model is flipped: instead of allowing the ability to send tokens to anyone while requiring approval to receive them, dTokens can be taken by anyone, but require approval to accept them. This structure also makes it harder for users to “burn” their dTokens-for instance, the zero address cannot approve an incoming transfer of dTokens.

Protected Collateral

On Compound and Aave, collateral supplied to the protocol is always available for lending. Euler adds an option where collateral can be deposited but not released for lending. This type of collateral is labeled “protected”: it does not generate interest, remains shielded from borrower default risk, can be withdrawn immediately, and helps prevent borrowers from using tokens to steer governance outcomes or open short positions.

Defer Liquidity

Usually, an account’s liquidity is verified right after any action is performed that might fail due to insufficient collateral-for example, withdrawing collateral, taking out a borrow, or leaving a market can trigger a transaction revert if it violates collateral requirements.

Euler introduces a mechanism that lets users postpone liquidity checks. Users can execute multiple operations first, and the liquidity check happens only once at the final step. For example, without deferring liquidity checks, a user would need to supply collateral before they can issue a borrow. But if both steps occur within the same transaction, deferring the liquidity check allows the operations to be done in any order.

Feeless Flash Loans

Unlike Aave, Euler does not include a built-in flash loan mechanism. Instead, by deferring the liquidity check, users can take an uncollateralised borrow, run any set of actions they want, and then repay the loan. This approach can be applied for rebalancing positions, building leveraged strategies, capturing external arbitrage opportunities, and more.