Summary
This proposal seeks approval to expand and reorganise the Euler Prime market by adding new assets from Coinbase, Ether.fi, Sky, Threshold Network, M^0, Midas and others. This will help to provide users with more diverse trading opportunities on Euler.
Motivation
Euler Prime is designed to be a conservative multi-collateral lending market, supervised by Euler DAO.
Today Prime has just 4 assets: WETH, wstETH, USDC, and USDT. The addition of new collateral and borrow assets to the Prime market aims to provide users with more diverse options to support a broader range of trading and borrowing strategies, including carry trades between yield-bearing and non-yield-bearing assets.
After the proposed expansion, Prime will include the following:
- Stable assets: USDC, USDT, USDS, Smart $M, alongside sUSDS and mTBILL to support treasury yield carry trades and provide liquidity for users to go long ETH and BTC.
- Ethereum assets: WETH, wstETH, cbETH, and weETH to support a variety of ETH-based strategies, including staking and leverage staking/re-staking carry trades.
- BTCfi assets: tBTC, WBTC, cbBTC, and LBTC cater to users seeking to borrow or collateralize their BTC holdings.
These assets will provide deeper liquidity for borrowing and lending markets, making Euler a more competitive and comprehensive platform for the most popular DeFi trading strategies.
Risk parameters
Euler Prime takes a conservative approach to asset listing and risk parameters. It is designed to support the most popular organic trades in DeFi, and provide a trusted set of vaults for other markets that can be relied upon for use as collateral in the broader market.
Loan-to-values (LTVs)
Euler uniquely supports the ability for vault creators to customise the LTV between any pair of assets in a multi-collateral market. This allows the LTV parameters to factor in the volatility and liquidity risks associated with both the collateral and liability asset in any given trade pair.
The proposed liquidation LTVs for Prime are shown in Table 1. These parameters take into account market liquidity of the underlying asset as well as pairwise volatility between any two assets. Note that the LTV of price correlated assets is generally much higher than that between non-correlated assets. This emulates the efficiency of what other platforms call an ‘eMode’, without the added complexity of having additional ‘modes’ users have to be aware of. They also compare favourably in terms of risk management and capital efficiency to other popular lending platforms. Euler is able to support similar levels of capital efficiency to isolated pool models, without the liquidity fragmentation.
Note that the vaults also come in two flavours. Escrow vaults hold user’s assets for use as collateral inside the vault at all times, and do not allow borrowing. This means that in the event a borrower needs to be liquidated, their collateral assets are guaranteed to be there at all times. Meanwhile, governed collateral vaults do allow assets to be borrowed from within the vault. This helps reduce the net cost of borrowing for borrowers, further boosting the rates for lenders due to increased demand, but comes at the cost of a small amount of additional risk. Namely, in the event of liquidation, a liquidator may not be able to atomically swap governed collateral assets for liabilities in the event the vaults are over-utilised. The LTV parameters below reflect this modest increase in risk (lower in Governed than in Escrow).
Supply & borrow caps
All assets will be managed with supply and borrow caps (Table 2) to mitigate risk while supporting the growth of borrowing markets:
- Supply caps: conservative supply caps will be applied to limit the maximum exposure of each new asset in the protocol. These caps will control the amount of these assets that can be deposited as collateral, reducing the risk of concentration and excessive exposure.
- Borrow caps: borrow caps will be set at conservative levels to ensure the protocol’s stability. As market liquidity and adoption increase, these caps can be gradually adjusted based on community feedback and risk assessments.
These parameters will be monitored and adjusted as necessary based on evolving market conditions and ongoing risk evaluations.
Interest rates
Interest rate models in Prime all use the popular ‘linear kink’ model (Table 3). The target utilisation in these models reflects the point at which the interest rate rises faster as borrowing increases. This is set conservatively relative to other popular lending markets, lowering capital efficiency slightly, but offering more protection to larger lenders who want to withdraw quickly from a market.
Oracles
All assets in the Prime market are priced using USD as the unit of account. The oracle adapters shown in Table 4 will be used to value collateral and debt for any user taking out loans using the market. The majority of the oracle adapters derive from Chainlink or Chronicle. The list can be checked at oracles.euler.finance.
MP = market price; ER = exchange rate / fundamental; Cross = uses two or more oracles, for example cbBTC / USD = cbBTC / USDC (Chronicle) * USDC / USD (Chainlink).
Rewards
A new proposal to distribute Reward EUL (rEUL) was recently announced. Euler Prime markets will be eligible for new locked EUL token rewards once that programme has gone live. In addition to this third party projects and collaterals that are present in the market and participate can add their own token rewards or points incentives.
Governance
Given Euler’s recent move to an optimistic governance framework, no formal on or off-chain voting is required for this proposal to pass. However, we encourage the Euler DAO and community members to provide feedback, share suggestions, and voice their opinions on this initiative. Community input will, as always, be crucial to ensuring that the Euler Prime market remains relevant, competitive, and risk-managed.
Implementation
Unless any concerns are raised or the DAO would like more time for consideration of this proposal, the Prime market will be implemented by the Euler Foundation in 2 days’ time.