What is Euler Finance

Euler Finance is a DeFi lending platform deployed on Ethereum. Launched in December 2021, the platform captures prices through Uniswap v3's TWAP mechanism, with permissionless listing of assets as its core highlight. We'll introduce more about Euler Finance's innovations in lending products in the following content.

What is Permissionless Listing?

In some early crypto lending programs, assets must be approved by a vote of the governance framework before they can be listed, meaning that “permission" is required for the asset to be listed and traded. For example, for the Aave platform, only assets that have been voted on by $AAVE holders can be listed and thus have a lending marketplace on the platform.

While on the Euler Finance platform, users can decide for themselves what tokens to list and create the relevant lending market, as long as such tokens have WETH trading pairs on Uniswap v3. This mechanism, on the one hand, enriches the trading universe and facilitates the growth of lending demand on the platform, but on the other hand, it also, not surprisingly, entails a high level of risk due to the "zero threshold".

Therefore, Euler Finance has adopted the Asset Tiers Mechanism to enhance the risk management of the platform.

What is Euler's Asset Tiers Mechanism?

Euler Finance divides crypto assets into three tiers, namely the Isolation-tier, Cross-tier, and Collateral-tier. The definition and comparison of these tiers are shown in the chart below.

It is easy to notice that "permissionless listed” isolation-tier assets have the highest risk and therefore cannot be used as collateral for lending to avoid liquidation due to a sharp fall in the value of the collateral. The lowest-risk crypto assets, such as ETH, USDC, and most stablecoins, are in the collateral tier.

In addition, while the asset tiers mechanism helps protect asset lenders and control platform risk, it introduced new user experience problems. Once Bob's account has borrowed one asset in the isolation tier, his account is locked and he can not borrow additional assets; if he wants to borrow more assets, he must then create and fund a separate account. This situation is particularly problematic for users with hardware wallets.

For this reason, Euler Finance supports the concept of "sub-accounts". Each Ethereum account can create up to 256 sub-accounts (including the main account) on the platform in order to manage multiple positions more easily and concisely.