Euler Finance

Euler Finance is a modular lending protocol that enables permissionless creation of isolated lending vaults via the Euler Vault Kit (EVK). It provides a credit layer for programmable finance where users can lend, borrow, and swap tokens with customizable risk parameters and capital efficiency. The protocol is designed for developers and risk curators to build custom lending markets and strategies.

How lenders earn yield on Euler Finance

Lenders earn yield primarily from the interest paid by borrowers in each isolated vault. Borrowers pay interest on their loans, and that interest flows to lenders.

Interest rates in each vault are set by customizable rate models that respond to borrowing demand. These models, with names like "linear-kink" and "reactive rate," automatically adjust rates based on how much of the vault's funds are being borrowed.

A 10% fee is taken from the borrowing interest. This fee is split evenly between the Euler DAO (the protocol's governing body) and the vault governor (the entity managing that specific vault). The fee is paid in vault shares, which grow over time through compounding.

Additional yield sources

• On-chain Reward Streams: A permissionless system uses a special algorithm to distribute multiple tokens as rewards to lenders and borrowers.
• Off-chain reward campaigns: Through integration with Merkl, targeted reward programs can be set up to encourage specific lending or borrowing activities.

Vault flexibility

Vaults can be set up as non-borrowable (only for collateral) or borrowable. The Ethereum Vault Connector (EVC) allows vaults to use assets from other vaults as collateral, enabling more complex strategies.

In summary, yield flows from borrower interest payments, boosted by optional reward programs and the compounding of fees.

Wintermute Ventures is listed as a backer on the Euler Finance website. Euler Labs, the company behind Euler Finance, states it is "backed by leading investors" but does not disclose specific names, rounds, or amounts on its official website or blog.