What Is Euler? The Modular Lending Protocol Rebuilding DeFi Credit, Explained

Euler is a modular lending protocol on Ethereum, and the simplest way to understand it is by contrast: where Aave and Compound run one giant shared pool that governance carefully curates, Euler V2 lets anyone deploy their own isolated lending market — a "vault" — with its own collateral, oracle and interest-rate rules, and then connect those vaults so an asset in one can back a loan from another. It is DeFi credit unbundled into building blocks. That design, plus one of the more dramatic comeback stories in the space — a $197M hack in 2023, near-total recovery, and a ground-up rebuild — is why Euler is worth understanding properly. Here is how it actually works, who runs the markets, whether the token matters, and where the real risks sit.

What Euler is, and who built it

Euler V2 is a permissionless, modular lending and borrowing protocol. "Permissionless" means you don't need a governance vote to create a market — the tooling lets anyone launch one. "Modular" means each market is a self-contained vault rather than a slice of a shared pool, so the risk of an exotic asset is quarantined instead of spread across the whole protocol. In mid-2026 Euler carries roughly $890M in total value locked, most of it on Ethereum mainnet, with a growing footprint on other chains.

It's built by Euler Labs, co-founded by Michael Bentley — an Oxford-trained evolutionary biologist who moved into DeFi — with co-founder Doug Hoyte and a team that originally incubated the project through Encode Club. Bentley led Euler as CEO from the start but stepped down in early 2026 into an advisory and product role as the protocol refocused on institutions, with Jonathan Han taking over as CEO. Euler V1 launched in 2022 as a capital-efficient, reactive-interest-rate lender with a knack for listing long-tail assets safely. Then came the hack (more on that below), and rather than patch V1, the team spent 2023-2024 rebuilding into something structurally different. Euler V2 relaunched in September 2024, and its TVL grew roughly 38x — to about $133M — within its first three months, before climbing to today's levels.

How Euler V2 works: two primitives, endless markets

Everything in Euler V2 reduces to two immutable smart-contract primitives. Understanding them is understanding Euler.

The Euler Vault Kit (EVK) is the factory. It lets anyone deploy a lending vault — a market for a single asset — built on the ERC-4626 tokenized-vault standard. When you deploy a vault you configure it: which assets it accepts as collateral, the interest-rate model, supply and borrow caps, the price oracle, liquidation parameters, and who (if anyone) governs it afterward. A vault can even be deployed governance-less and frozen, so its rules can never change. The EVK ships several vault flavours — escrow vaults that only hold collateral, borrowable vaults, yield-aggregating vaults — and because deployment is permissionless, listing a new asset no longer waits on a DAO vote.

The Ethereum Vault Connector (EVC) is what turns a pile of isolated vaults into an actual credit market. On its own, an EVK vault is a silo. The EVC is the immutable mediator that lets vaults compose: you enable one vault as your "collateral" and another as your "controller" (the one you're borrowing from), and the EVC tracks your position across all of them, defers and batches liquidity checks so multi-step actions settle atomically, and enforces that your account stays solvent everywhere it has exposure. The classic example: deposit wstETH into an escrow vault, then borrow USDC from a separate stablecoin vault against it — two independent markets, made interoperable by the EVC.

The EVC is deliberately built as a neutral primitive. It isn't hard-wired to Euler's own vaults; other protocols can build EVC-compatible vaults and plug into the same connective tissue. That's the ambition behind Euler V2 — not just to be a lending app, but to be infrastructure other credit systems assemble on top of. It's the same modular philosophy as Morpho Blue, arrived at from a different direction.

The role of curators: who actually runs the markets

Permissionless creation raises an obvious question: if anyone can spin up a market, who decides which ones are trustworthy? In practice, Euler V2's liquidity is concentrated in curated vaults run by professional risk teams. Curators deploy vaults, set and adjust parameters, choose which collateral to accept, and publish risk reporting — effectively acting as the underwriters of a modular lending system.

The major curators on Euler in 2026 are familiar names across modular DeFi: Re7 Labs (the largest Euler curator, focused on stablecoin and ETH-correlated vaults, with regular risk reports), MEV Capital (higher-yield, more aggressive strategies for depositors who tolerate variance, often arbitraging rate differentials across Euler, Aave and Morpho), and Gauntlet (quantitative risk management). As of April 2026, curated stablecoin vaults (USDC, USDT, USDS) accounted for around $420M of Euler's TVL, with liquid-staking-token collateral vaults (wstETH, weETH, cbETH) making up roughly another $210M. This is the shape of modern DeFi lending: the protocol provides neutral rails, and a competitive layer of curators provides the judgment.

The EUL token and how value flows

Euler has a token, EUL, but it's worth being precise about what it does. EUL is an ERC-20 governance token with a fixed total supply of 27,182,818 — a deliberate nod to Euler's number, e ≈ 2.71828. Holders govern the Euler DAO: they propose and vote on protocol upgrades, treasury decisions, and ecosystem parameters. By mid-2026 the large majority of supply — roughly 88% — has unlocked, with allocations spread across the DAO and community, strategic partners, the team and advisors, and the Euler Foundation.

EUL is not a deposit token and it does not pay you interest for holding it — yield on Euler comes from lending assets in vaults, not from the token. Where EUL captures value is through Fee Flow: a mechanism that auctions accumulated protocol fees in exchange for EUL, routing value back to the token and the DAO in a transparent, market-driven way rather than through opaque emissions. Alongside it, Reward Streams is Euler's permissionless system for distributing multiple reward tokens to vault participants without requiring them to lock or stake their assets — a cleaner incentive rail than the staking-lockup model many protocols use. Net: EUL is a governance-and-value-capture asset, not a yield instrument.

The numbers and market position

At roughly $890M in TVL in mid-2026, Euler sits in the upper-middle tier of DeFi lending — well below the multi-billion-dollar giants (Aave remains the category leader, with Morpho and Spark also large) but firmly among the credible modular players. What the headline number understates is the velocity of the comeback: from near-zero after the V2 relaunch to nine figures within months, then steady growth as curators brought serious stablecoin liquidity onboard.

Euler has also broken out of being Ethereum-only. Through 2025-2026 it deployed across Base, Swell, Sonic and BOB, with contracts live or launching on additional networks including Berachain and Unichain. The early multichain traction was quick — tens of millions in deposits within days of each launch — reflecting demand for Euler's vault model beyond mainnet. The stated ambition is "Euler on every chain," paired with a 2026 pivot toward institutional credit markets: bespoke, permissioned vaults for professional counterparties built on the same EVK/EVC rails.

The ecosystem: EulerSwap, Earn and integrations

Euler is increasingly a suite rather than a single product. The standout addition is EulerSwap, an automated market maker built on Uniswap v4's hook architecture and wired directly into Euler's lending vaults. Because the liquidity an LP provides also lives in a vault, that capital earns both swap fees and lending yield simultaneously — and EulerSwap's just-in-time liquidity mechanism can, Euler says, simulate up to 50x the depth of a conventional AMM in stable or pegged markets. Each pool is controlled by a single LP account, which makes EulerSwap especially suited to treasuries and protocol-owned liquidity that want active control, rather than passive retail LPs.

Euler Earn provides ERC-4626 yield vaults that allocate deposits across underlying markets — a curated, one-click way to earn without managing individual vault positions. And because the EVK builds on ERC-4626 and the EVC is an open primitive, Euler slots naturally into the broader DeFi stack: aggregators, dashboards and other protocols can integrate its vaults as standardized components. For the wider context on how modular lending fits the landscape, see our what is DeFi guide.

How to actually use Euler

For a typical user, the flow is straightforward:

1. Go to the official app (app.euler.finance) and connect a wallet. As always, reach it via a bookmark you trust — lending front-ends are prime phishing targets.
2. Pick a market, and read the curator. Browse vaults by asset and yield, but before depositing, check who curates it, what collateral it accepts, and the caps and oracle. In a modular system the vault's parameters — not just the protocol's name — are what you're trusting.
3. Lend (earn) or borrow. Deposit an asset into a vault to earn interest. To borrow, enable a collateral vault and a controller vault via the EVC, supply collateral, and draw the borrowed asset — keeping a healthy buffer above the liquidation threshold.
4. Monitor your health factor. Cross-vault positions can be liquidated if your collateral value drops or the borrowed asset's value rises. Watch it, especially in volatile markets.

If you're new to the mechanics of collateral, health factors and liquidations generally, our how to earn yield on stablecoins guide covers the fundamentals that apply here too.

Risks and what to watch

A clear-eyed take, because Euler's history demands one.

• The 2023 exploit is part of the record. On 13 March 2023, Euler V1 was drained for about $197M — the largest DeFi hack of that year — via a flaw in a single line of code (a donation function added in an audited July 2022 update). The remarkable ending: after roughly three weeks of on-chain negotiation the attacker returned the funds, and because the assets had appreciated, Euler recovered around $240M. V2 is a from-scratch rebuild, not a patched V1 — but the episode is a permanent reminder that audited code still fails.
• Curator and vault risk is the real exposure now. In a modular system, the protocol can be sound while an individual vault is dangerous — thin-liquidity collateral, an aggressive loan-to-value, a bad oracle, or simply a curator's misjudgment. Depositors inherit the curator's competence. Favor established curators and understand each vault's collateral.
• Correlated stress and contagion. Cross-vault positions behave in ways single-market lending doesn't when many assets move together. DeFi's April 2026 turbulence — a multi-billion-dollar TVL drawdown that rippled across curated-vault protocols after a staking exploit elsewhere — underlined that curated-vault systems share systemic weather even when each vault is isolated on paper.
• Smart-contract risk, despite heavy auditing. Euler V2 ran one of DeFi's largest security programs — 29 audits by a dozen firms, formal verification, fuzzing, a live CTF and a bug bounty of up to $7.5M, and the core EVC/EVK are immutable. That lowers risk; it doesn't zero it.
• Token volatility. EUL is a volatile, mostly-unlocked governance token whose value tracks protocol success and market sentiment, not a claim on yield.

Bottom line

Euler V2 is one of the clearest expressions of where DeFi lending is heading: away from a few monolithic pools and toward neutral primitives — the EVK to mint markets, the EVC to connect them — with a competitive layer of curators doing the underwriting. It pairs genuine engineering ambition with a comeback story few protocols could survive: hacked for $197M, recovered nearly all of it, and rebuilt into something more flexible than what it lost. The flip side of modular power is that trust moves down to the vault and the curator, so "using Euler" really means using a specific market — read it before you deposit. If you want the broader map, our what is DeFi and how to earn yield on stablecoins guides are the natural next reads.

Related guides

• DeFi lending protocols
• Dolomite
• Moonwell
• Venus
• Yearn Finance

Not financial advice. DeFi lending carries smart-contract, curator and liquidation risk; EUL is volatile. Always verify links on Euler's official channels and understand each vault before depositing.