Euler Finance is a permissionless, decentralized lending protocol designed to improve capital efficiency and lower the risks associated with lending and borrowing volatile, long-tail crypto assets.
Euler Finance is a second-generation money market protocol that introduces a number of DeFi-related innovations to enable permissionless lending and borrowing of crypto assets.
It is intended to maximize capital efficiency while minimizing the risks associated with the market’s long tail.
Explanation of Euler Finance
Euler Finance is a novel lending protocol designed to allow for the permissionless borrowing and lending of risky, long-tail crypto assets.
It’s worth investigating DeFi’s current lending landscape to better understand Euler’s unique value proposition.
Aave and Compound are the two dominant decentralised lending protocols today.
They account for roughly half of the total market share, with approximately $6.06 billion and $2.79 billion in total value locked.
Users who want to earn interest on their crypto assets can deposit them in the liquidity pools of Aave or Compound, making them available for borrowing.
Users looking to short crypto assets or take on additional leverage, on the other hand, use these lending protocols to borrow.
Compound and Aave are primarily concerned with facilitating lending and borrowing for a limited number of crypto assets. Both protocols’ tokens are widely regarded as among the safest on the market.
Neither protocol was designed to deal with the risks that come with more volatile, illiquid crypto assets.
Instead, both protocols rely on a permissioned listing system in which new tokens seeking to be listed must first be approved by governance via voting.
While this somewhat conservative approach has advantages, it leaves a large portion of the potential lending and borrowing market unserved.
This is where Euler enters the picture. Euler is a permissionless money market protocol designed to serve the market’s vast long tail. Every Uniswap V3 token with an ETH liquidity pair can be listed and made available for borrowing and lending on Euler.
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