New and upcoming lending platform Eüler XYZ has been making headlines in light of its $8 million Series A round led by blockchain venture capital firm Paradigm. After winning a university hackathon, founders Michael Bentley and Doug Hoyte were advised to fully develop the protocol. Led by a team of Oxford graduates and researchers, Eüler is targeting competing DeFi (decentralized finance) lending platforms Compound and Aave with "innovative features," but are they safe?
Similar to both Aave and Compound, Eüler XYZ distinguishes itself by allowing users to create their own lending markets like how traders can create their own trading pairs on decentralized exchanges like Uniswap. The features include permissionless lending markets, asset tiers, reactive interest rates, protected collateral, MEV-resistant liquidations, and multi-collateral stability pools just to name a few.
Risk of permissionless listing on a decentralized lending platform
There are inherent risks with decentralized lending platforms regarding liquidity, market crashes, and security breaches. However, enabling users to create their own lending markets is a bigger risk because of potential "spillover." Since cryptocurrencies are volatile in nature, users are susceptible to seeing their collateral assets decrease in price. This leads to liquidations that fail to pay off borrowers sufficiently, which leaves multiple pools of various assets in debt.
Utilizing Uniswap Version 3 (v3) data, Eüler will accept any asset that has a wrapped Ethereum (WETH) pair on Uniswap v3 immediately. To mitigate and lessen the risk and challenges of permissionless listing, Eüler XYZ has implemented an asset tier mechanism into its protocol.
Eüler XYZ has "asset tiers"
In order to maximize capital efficiency on the protocol and to minimize systemic risk, Eüler XYZ introduces "asset tiers." With three different types of tiers that each enable distinct trading features and restrictions. The three tiers consist of an isolation tier, cross-tier, and collateral tier.
Each tier enables borrowing and lending of assets. With every tier, there are limitations in which an asset can be used as collateral. In structuring the protocol this way, Eüler XYZ minimizes and categorizes the level of risk involved in borrowing and lending out assets— especially those that aren't widely known or volatile. In contrast to Aave or Compound, Eüler might hold liquidity pools of assets not typically seen.
In comparison to Compound, lenders who deposit liquidity into a pool in Eüler will receive interest-bearing ERC-20 tokens. The eTokens can be redeemed for their share of the underlying assets in the pool at any time, as long as there are unborrowed tokens in the pool. As borrowers pay back their loans with interest, the pool of assets will grow over time and so will the redeemable interest on eTokens.
Protected collateral on Eüler ensures security not seen on other lending platforms.
In contrast to Aave, where any assets deposited are made available for lending, Eüler provides users the option to "protect" their collateral. The assets aren't available for lending and no interest is earned. This is pivotal in mitigating the risk of borrowers defaulting, short positions, and governance manipulation from token utilization.
The new and upcoming lending platform is set to go live by the end of 2021 pending a security audit. Overall, crypto natives seem to have their sites on the innovative, secure, and efficient features Eüler has to offer.