Bessie Liu

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.”



Read more: <a href="https://blockworks.co/news/euler-suffers-200m-exploit">Euler suffers $200M exploit in flash loan attack</a>



“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 <a href="https://blockworks.co/tag/audit">audits</a>, with a formal verification and security review expected to follow, Bentley said.



Read more: <a href="https://blockworks.co/news/crypto-hackers-bug-bounties">Helpful hackers net more than $640k in 1 year with crypto bug bounties</a>



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.



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How Euler Finance made its comeback after $200M exploit

A new Ethereum Improvement Proposal, or EIP, aims to introduce asynchronous deposit and redemption flows as an extension to the existing ERC-4626 tokenized vault standard.



ERC-4626 itself is a standard designed to introduce parameters for yield-bearing vaults. These vaults are smart contract platforms that execute strategies, providing rewards for the token depositor.



The standard, though, is designed to ensure that the vaults are atomic, meaning that swaps have a deposit and redemption limit. Another way to explain atomic vaults would be “all or nothing” — If X happens, Y must happen at the same time. 



Read more: <a href="https://blockworks.co/news/tokenized-vault-ethereum-erc-4626">Tokenized vaults see steady deployments after ERC-4626 adoption</a>



In an interview with Blockworks, Asad Khan, a DeFi politician at Centrifuge, explains that with atomic transactions, a user who deposits something to lend immediately receives a token that represents what they share.



EIP-7540, in this instance, would ensure that asynchronous deposits and redemption flows are possible.&nbsp;



This EIP has the potential to benefit protocols that deal with real-world assets (RWAs), cross-chain lending and liquid staking, according to Khan.



“The asynchronous request is you deposit a token, and you may not get the token back until the request is complete later on, this can be based on a number of parameters,” Khan said.



An example of an asynchronous request would be, if X happens, Y can only happen under the conditions that Z is met.&nbsp;



In this case, X could be a lender who deposits collateral into a pool, Y would be the share that the lender receives only after Z, a borrower, actually borrows money from the pool.



As it currently stands, Khan explains, every RWA protocol has to deal with its own unique off-chain processes. The purpose of EIP- 7540, would be to standardize how protocols can handle these on and off-chain transactions.&nbsp;



Asynchronous transactions could potentially lead to greater security risks, however. ERC-4626 vaults have been designed to be atomic to prevent one party from controlling multiple assets at the same time.&nbsp;



Jeroen Offerijns, Centrifuge&#8217;s chief technology officer and co-author of EIP-7540, told Blockworks that asynchronous deposit and redeem flows are inherently more complex than atomic flows when it comes to implementation because of the additional state transitions that are required.&nbsp;



“More attention should be to extensive testing of the flows, and auditing of any asynchronous vault implementation,” Offerijns said. “Standardizing can help by creating reusable property test suites, similar to what has been developed for ERC-4626.”



Read more: <a href="https://blockworks.co/news/tokenized-vault-standard-ethereum">Tokenized Vault Standard on Ethereum Set to ‘Kick Off New DeFi Summer’</a>



Offerijns noted that asynchronous flows will add pressure to protocols that must ensure an execution of a request operates fairly. Offerijns added that Cenfrigue has built an epoch mechanism that can bundle orders and even the playing field for requests and protect against frontrunning.&nbsp;



EIP-7540 is still in its early stages. The proposal must first be discussed on the <a href="https://ethereum-magicians.org/t/eip-7540-asynchronous-erc-4626-tokenized-vaults/16153/2">Ethereum Magicians</a> forums before moving onto next stages.&nbsp;



“Once consensus has been reached, the proposal will move to review, last call and in the end a final stage, at which point it is accepted,” Offerijns said.



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A new EIP aims to revamp the tokenized vaults standard for RWAs

Tokenized real world assets such as homes and private credit are a trending topic in the blockchain technology space, seemingly poised to become the next major narrative.&nbsp;



Earlier this month, a handful of companies in the industry banded together to form the Tokenized Asset Coalition (TAC), including Aave, Circle and Coinbase. Beyond creating educational content and building the necessary infrastructure to bring different types of assets on-chain, the coalition is also looking at developing relevant, compliant principles to drive the adoption of blockchain technology.&nbsp;



Blockworks sat down with Centrifuge founder Lucas Vogelsang at Permissionless II to learn about some of the necessary standards and regulatory hurdles such as know-you-customer (KYC) laws that need to be developed in order to bring <a href="https://blockworks.co/news/real-world-assets-empire-buzzwords-defi">tokenized assets onto the blockchain</a>.



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Blockworks: Could you tell me a little bit about how the tokenized asset coalition came to be and what it is trying to achieve?



Vogelsang: In 2018, there was this telegram group called “DeFi,” just decentralized finance, and it was really just a group of people looking at how to build financial products on-chain. At that time we barely had any crypto infrastructure, but the idea was that if you could create a token, and that token could be used in your DeFi protocol, and it becomes composable then you are building this new financial system.&nbsp;



Those people coming together and working on it just sped up the industry so much. One of the things that came out of that was DeFi Summits, for example. I saw firsthand how much the financial system is an ecosystem of many different participants and how you make it so much faster if you improve collaboration.&nbsp;



With TAC, what we’re trying to build is a marketplace or a whole ecosystem. The better we can standardize and work together, the faster the whole industry will reach an escape velocity and actually be able to compete.&nbsp;



Blockworks: What are some standards the TAC is looking into?&nbsp;



Vogelsang: I think <a href="https://blockworks.co/tag/kyc">KYC</a> will be one of the standardizations that will come sooner or later. KYC credentials today aren&#8217;t really portable, and real-world asset DeFi will have to be KYC’ed and we will have to figure out how we actually work together on this.&nbsp;



Another one that I’m personally very interested in, and not really an active TAC project, is the 4626 tokenized vaults standard. If you think about most of these real-world asset pools, the problem is that many of them are incompatible with 4626 because 4626 is atomic. So, if you want to redeem shares, in the same transaction, you immediately get the underlying collateral or pool asset back, but this is not the case for RWAs. So we’re figuring out a way to see if we can come up with an extension that is more compatible with RWA projects so that if you want to provide liquidity or invest in any of these kinds of things, you can do so.



Blockworks: What is the value of having RWAs on-chain?



Vogelsang: The biggest value prop of <a href="https://blockworks.co/tag/real-world-assets">RWAs</a>, well I think there are two. There’s making the creation of these assets more efficient because you have instant settlement, a single source of truth on-chain that different service providers can use and you don’t have to send spreadsheets back and forth.&nbsp;



The other thing that is part of this whole RWA narrative for me is creating better market infrastructure. So once you have these assets on-chain, you can trade it more efficiently, you can borrow against it in an automated way. But you have to have to start with the <a href="https://blockworks.co/tag/tokenization">tokenization</a> part because, without these assets, there’s nothing to do.&nbsp;



Where this journey is going now, and this is where it gets exciting, is when you have 10x improvement over [traditional finance]. Ultimately, people don’t care about having these assets as a token if it doesn’t give them a better experience. If you just save a little bit of fees per year because the tokenization process is a bit cheaper than the [traditional finance] securitization process, sure that’s cool, but it’s not nearly as cool as if you can take an asset today that is illiquid, and you buy a tokenized version of it that’s liquid, because the market infrastructure is actually better on-chain and more efficient.&nbsp;



Blockworks: Could you tell me a little more about these illiquid assets in the real world that you think can be liquid on-chain? Would it be something like properties or houses?



Vogelsang: There are a lot of people in the crypto native world experimenting with marketplaces for non-fungibles, effectively, making a house liquid requires the same thing — we need to figure out a way for a liquid market to exist for non-fungible assets, real-world assets, but I think that is going to come later because it’s still a pretty hard problem.&nbsp;



If you look at fungible assets, such as private credit, the reason why it’s called private credit is because it’s not publicly traded. It is not an open public market because those assets are too hard to make liquid on the New York Stock Exchange.&nbsp;



If we can build a more efficient market infrastructure for these assets, we can turn them from private credit assets to public credit assets. All of these assets have a huge illiquidity premium right now because they are more expensive to finance. So when you can take these assets that are too small or too complicated to make liquid, and you move it to the right on the spectrum, that’s when you will start building something really powerful because now all these assets become liquid.



That’s why when I think of standardization efforts, focusing on creating the infrastructure needed for that to happen is really the biggest unlock for real-world assets.



This interview has been edited for brevity and clarity.



Updated Oct. 5, 2023 at 11:55 am ET: Clarified for additional context.



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Standardization coming for real-world assets ‘sooner or later’: Q&A with Centrifuge CEO

Following the introduction of ERC-4626, tokenized vault deployments have remained steady.



ERC-4626 is a standard that is designed to introduce implementation techniques and parameters for yield-bearing vaults in crypto. The standard was introduced in early May.



<a href="https://dune.com/queries/2641987/4389806">Data</a> compiled by Dragonfly data scientist Hildebert Moulié shows that every week following the introduction of ERC-4626, over 50 tokenized vault deployments have occurred across EVM-compatible blockchains.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/ENb3fIooPdyQRszYXFkclInEJMDT5OImDj960O-GbJ0-J3sLyeQsQI3-GJOhR6GRnVN_3CVkhOXhOT7QPIpxpfvEMy9PHmQ--WxhGL8CG49KSE4ju6fp5CaiEMOMXX1IHt2ksCyeW_EXBgTs5b9PDgw" alt=""/></figure>



In a previous interview with Blockworks, Superform co-founder Blake Richardson contended that this new standard would be as important to DeFi as ERC-20 — a commonly used token standard — is to the <a href="https://app.blockworksresearch.com/glossary#initial-coin-offerings-icos">ICO boom</a>.



Read more: <a href="https://blockworks.co/news/tokenized-vault-standard-ethereum">Tokenized vault standard on Ethereum set to ‘kick off new DeFi summer’</a>



“I think the compound benefit of standardization will lead more people to adopt DeFi because they can start to trust it more,” Richardson said.



To a certain extent, Richardson was right. Although tokenized vaults already existed before ERC-4626, it wasn’t until these principles were introduced that their implementations became more consistent.



Prize savings protocol PoolTogether was one of the most recent to make use of the standard. PoolTogether revealed during a private beta launch that v5 of its protocol introduces the permissionless use of any token that has a 4626 yield source.&nbsp;



Users can deposit tokens into PoolTogether’s standard ERC-4626 vault in order to win prizes or customize their own vault. These vaults will create yield and liquidate the yield into POOL tokens, the protocol’s native asset, reflecting the vault’s likelihood of winning a prize.



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Tokenized vaults see steady deployments after ERC-4626 adoption

Macauley Peterson

If you start dropping references to &#8220;Ethereum request for comment” in polite conversation, you can expect some blank stares. But sometimes innocuous technical lingo like ERC-20 (tokens) and ERC-721 (NFTs) can become the crypto-equivalent of a household name.



Proponents of the tokenized vault standard ERC-4626 — specifically those in the advocacy group 4626 Alliance which announced an expansion to 11 members Thursday — hope that this little pull request, finalized in March 2022 will find its place in a future ERC hall of fame.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">1/🌟 The 4626 Alliance is thrilled to announce a stellar lineup of new members joining forces to propel the ERC-4626 standard: <a href="https://twitter.com/yearnfi?ref_src=twsrc%5Etfw">@yearnfi</a>, <a href="https://twitter.com/fraxfinance?ref_src=twsrc%5Etfw">@fraxfinance</a>, <a href="https://twitter.com/sommfinance?ref_src=twsrc%5Etfw">@sommfinance</a>, <a href="https://twitter.com/AlchemixFi?ref_src=twsrc%5Etfw">@AlchemixFi</a>, <a href="https://twitter.com/Blockworks_?ref_src=twsrc%5Etfw">@Blockworks_</a>, <a href="https://twitter.com/MorphoLabs?ref_src=twsrc%5Etfw">@MorphoLabs</a>, and <a href="https://twitter.com/joey__santoro?ref_src=twsrc%5Etfw">@joey__santoro</a> <a href="https://t.co/vgTl4fs1Rq">pic.twitter.com/vgTl4fs1Rq</a>&mdash; 4626 Alliance (@erc4626) <a href="https://twitter.com/erc4626/status/1654121022201950208?ref_src=twsrc%5Etfw">May 4, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Disclosure: Blockworks is among the members of the 4626 Alliance.



The standard was first <a href="https://eips.ethereum.org/EIPS/eip-4626">proposed</a> by <a href="https://blockworks.co/tag/fei-protocol">Fei</a> co-founder Joey Santoro in late 2021. Within months, it sparked the <a href="https://twitter.com/joey__santoro/status/1504603906726240258">interest</a> of developer teams from major DeFi protocols such as Balancer, <a href="https://blockworks.co/tag/yearn-finance">Yearn</a> and <a href="https://blockworks.co/tag/frax">Frax</a>.



That prompted Blake Richardson and Vikram Arun, co-founders at Superform, to champion the standard, forming the 4626 Alliance alongside mStable, Balancer and Aztec.



“Our thesis is that 4626 creates the new DeFi summer,” Richardson told Blockworks. He predicts it will be as important as the ERC-20 token standard that led to <a href="https://www.blockworksresearch.com/glossary#initial-coin-offerings-icos">the ICO boom</a>.



<h2 class="wp-block-heading">DeFi’s “ERC-20 moment”</h2>



To date, DeFi has failed to be adequately composable and easy to understand, and has suffered from security risks as a result of a lack of standards, Richardson said. Projects have been forced to author bespoke adapters in order to link up with each other, adding complexity and time to deploy dApps safely.&nbsp;



“Instead of all these isolated groups of people building things that don’t interact with each other, we can build entirely unique composable projects,” Richardson said.



One example is Sommelier — also a member of the 4626 Alliance — which <a href="https://blockworks.co/news/defi-multichain-sommelier-axelar">announced its launch on Arbitrum</a> this week. Co-founder Zaki Manian lamented the standards problem in DeFi, and said that 4626 could speed up his team’s work.



“We’re actually talking to lots of other people in [Ethereum] DeFi about trying to work better [with 4626],” Manian told Blockworks. “If DeFi could collectively all adopt 4626, Sommelier could be everywhere and plug into every protocol in like a few days.”



Yield generating strategies are able to become more complex while also being harder for ne&#8217;er-do-wells to attack. Provisioning audits and ensuring safety has been a major obstacle&nbsp; because each individual protocol implementation has brought its own unique, often complex risks. 4626 — standardizing the tokenized vault — is expected to make the auditors’ job much easier.



But it’s not just about improving speed to market and helping projects become less <a href="https://blockworks.co/tag/hack">hack-prone</a>, the standard also enables new DeFi primitives such as tools for customizable yield exposures, like those developed by Sense Finance, Richardson said.



“Composability is one of the key value props of decentralization in the first place — the whole money Lego pitch for DeFi is one of it’s most critical for adoption,” according to Richardson, who thinks the types of applications that will be built using the standard, is set to rise dramatically.



For instance, <a href="https://blockworks.co/news/gearbox-is-releasing-v3">Gearbox uses 4626</a> to let levered yield strategies be included seamlessly into existing strategy vaults, such as those planned by Yearn Finance in its upcoming V3.



Increasing adoption within DeFi is the primary goal of the alliance, and once met, members will decide on the next steps, such as raising awareness of its benefits to the public.



“Most investors aren’t particularly standard conscious — if they buy an NFT with 1155 versus 721 it’s not changing their perspective a ton,” Richardson said. “However, I think the compound benefit of standardization will lead more people to adopt DeFi because they can start to trust it more.”



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Tokenized Vault Standard on Ethereum Set to ‘Kick Off New DeFi Summer’

DeFi protocol Sommelier announced the launch of a new ETH liquid staking token vault called Real Yield ETH on Wednesday.



Real Yield ETH is the brainchild of strategy provider Seven Seas Capital and Web3 data analytics firm DeFine Logic Labs.



The vault is designed to generate yields on liquid staking tokens including rETH, stETH and cbETH through two primary techniques: leveraged staking on Aave and Compound, and providing liquidity on Uniswap V3. The protocol is expected to make more tokens available on Real Yield ETH in the future.



“The original foundational idea behind real yield ETH was having an index of the best yield on ETH,” Stephen Henkel, the CEO of Define Logic Labs, told Blockworks.



Existing index tokens peg their holders to the validation yield and are dependent on how much commission validators or the protocols are taking, Henkel said.



In the case of Real Yield ETH, which is considered a yield-weighted index, the more yield a particular strategy can receive, the more it will take from that index.



“As a strategy reaches its soft cap of TVL, the incoming TVL can go into other strategies, so it is continuously weighed in such a way that it can take in more and more TVL,” Henkel said.



Although Real Yield ETH is built on top of Sommelier — which is part of the Cosmos IBC, it is an ERC-4626 vault and will live on the Ethereum blockchain.



Sommelier helps these unique strategies come to life as the technology enables “Uniswap V3 tick optimization, really tight leverage loops and taking multiple positions across multiple assets and protocols,” Sun Raghupathi, the co-founder and CEO of Seven Seas, told Blockworks.



<a href="https://www.blockworksresearch.com/">Blockworks Research</a> Analyst David Rodriguez notes that “Sommelier&#8217;s strategy of leveraging an app-chain to optimize the Ethereum DeFi experience that offers non-custodial, institutional-grade mid-frequency strategies that change with on-chain market conditions is a 0 to 1 improvement on yield aggregation protocols like Yearn Finance.”



“Based on (unofficial) backtested models, RealYieldETH should be able to scale to over $60M TVL while providing ~13%+ APY without liquidity incentives,” Rodriguez said. “This is &gt;2x yield than the next competing ETH-based yield opportunity offered by Frax&#8217;s sfrxETH product.”



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