How Euler Finance made its comeback after $200M exploit

Lending platform Euler will be launching Euler v2 in the second quarter of this year, making an anticipated return following an unfortunate $200 million exploit last year.

Euler v2 introduces a modular design, different from its predecessor. It includes the Euler Vault Kit (EVK), allowing developers to tailor lending vault designs, and the Ethereum Vault Connector (EVC), a tool for linking ERC-4626 vaults with various smart contracts.

In an interview with Blockworks, Euler’s co-founder Michael Bentley noted that v2 of Euler will have “a lot more adaptability, freedom and flexibility for users than it ever had on v1.”

“With this modular lending system of vaults, what we allow users to do is create these kinds of decentralized, permissionless, noncustodial credit markets themselves, and they can create risk-reward tolerance that is right for them and for their users,” Bentley said.

Bentley explained that an interesting feature of Euler v2 would be the ability for users to tap into pre-existing vaults from elsewhere in the Euler ecosystem.

“You can use collateral that already has deposits in it when you create a new lending and borrowing vault,” Bentley said. “Euler vaults allow people to lend out their collateral while they’re using it as collateral — this is called rehypothecation — and allows for a lot more capital efficiency for lenders.”

The public codebase for EVC has been live since January and has been extensively audited with a $200,000 bounty prepared for those who can spot bugs. The EVK codebase is currently going through a round of audits, with a formal verification and security review expected to follow, Bentley said.

Euler v2 had been in the works long before the exploit in March last year. Bentley noted that the deployment of Euler v1 taught the team valuable lessons. Noting that the protocol lacked flexibility and was dependent on a single governance model that wasn’t scalable.

It is still uncertain how Euler will relaunch v2 and incentivize users to be onboarded back onto its protocol. Bentley notes that the Euler community governance is in the process of determining these next moves.

“All of our governance is just coming back to life, it’s been a little bit dormant as you might expect given what happened last year, but it’s getting fired up again now,” he said.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.