🏛️ Request for a Formal Governance Proposal Regarding Compensation for Users Affected by the Elixir and Steam Labs Collapse

[fendi]

As a long-time supporter and one who remains grateful for Michael and the team’s swift action in recovering funds during the infamous Euler v1 hack, I am very disappointed with Euler’s handling of the Stream Finance / Elixir / Stables Lab insolvency and its aftermath. The Euler team appears to have adopted a stance of moral high ground while doing nothing to mitigate the fallout for users. I expect Euler team will defend lenders by collaborating all parties and crawling back funds just like what they did during the hack. Instead, it appears they blame lenders overlooked crucial facts.

After all, users relied on the official Euler front end. The lack of timely and clear warnings is unacceptable. The UI continued to function normally and displayed no warning signs even several days after Stream Finance publicly announced its insolvency. The vaults with super high APR still remain open for deposits, luring uninformed lenders to the slaughterhouse.

Consider the K7 EURC vault on Avalanche as a example. At first glance, it appeared safe, listing only USDT, USDC, and AVAX as permitted collateral. There was no clear indication that the USDT/USDC within this vault were compromised by the bad debt (Elixir exposure). Even experienced users would struggle to spot this critical distinction. A warning was only added on approx. 11/10— 10 days after the Stream Finance issue became public.

I used to have low 7-fig deposits in Euler but now I’m very scared depositing any funds into Euler’s vault

[rzo]

Nice to hear that no one wants to take responsibility. For example, even the OKX wallet marked the K3 USDT vault as a trusted protocol, and now they’ve also refused any compensation — even though it was some kind of collaboration with extra bonuses in AVAX.

I’m not an expert, but to me it’s still unclear why such a huge amount of funds was allowed to be borrowed by Elixir, and who was responsible for ensuring timely liquidation.

[daviloutffi]

I understand your point, and technically you’re right — Euler, as a modular and permissionless protocol, isn’t directly responsible for third-party vaults.

However, this isn’t just about technical responsibility — it’s about reputation and trust. The Elixir and Steam Labs situation has already affected how many users perceive the safety of interacting with anything connected to Euler.

If the community truly cares about the long-term health and credibility of the protocol, then supporting a fair form of compensation or at least an official recognition and response is essential.

Sometimes, protecting the ecosystem’s reputation is more valuable than protecting the treasury balance.

[Seini]

What happened will surely happen again due to the permissionless nature of the protocol.
If Euler Labs has to dip into its own pockets to reimburse users today, that means it will have to do so every time, which is impossible. I am thinking precisely about the long-term health of the protocol when I say this, because I want it to have its funds for as long as possible, both in dollars and in tokens.
What happened is really sad, but it is in no way the fault of Euler Labs. Why make someone pay for mistakes they did not make?

[daviloutffi]

I understand your concern about sustainability — that’s a fair point.

But we can’t ignore that Euler itself accepted RE7 Labs as an official curator and integrated their vaults into the ecosystem, giving them legitimacy in the eyes of users. That endorsement created a sense of trust.

Moreover, the oracle failure that prevented the proper liquidation of USDX positions was a core protocol issue, not just a curator’s mistake. So, while the situation was initiated by a third party, Euler also played a role in allowing these vulnerabilities to exist.

It’s worth noting that similar situations have happened before in other major DAOs, such as Lista DAO, where the team and the community went above and beyond to help users recover from losses and preserve the protocol’s reputation.

This is why many of us believe it’s only fair that Euler participates in finding a solution — not out of guilt, but out of responsibility, leadership, and commitment to the users who trusted the ecosystem’s integrity.

[Seini]

Euler Labs never requested or paid for the services of Re7 Labs; these are curators who operate throughout the DeFi ecosystem, such as TelosC or K3.

From what I understand, it was not a failure of the oracle, but once again the curator who chose to hardcode the stablecoin oracle at $1, which prevented liquidation.

Euler Labs is only asking to help the third parties concerned, but they are not responding to their requests.

The protocol worked exactly as it was supposed to; the only ones at fault are the curators, not the protocol. If you want compensation, you need to turn to them.

[keyringdepositor]

I support this proposal and I think it’s important to be honest about why compensation is justified. The losses in the Keyring vault (as well as others) weren’t just caused by Stream/Elixir collapsing. They were made far worse by failures inside Euler itself.

Euler had a direct integration with Elixir, and the vaults relied on that integration for liquidation purposes. When Elixir decided to turn it off, that integration didn’t work and the liquidation option was effectively broken at the exact moment users needed it. That’s not an external issue, that’s a failure inside Euler’s system.

These vaults also were “verified”, which clearly signals that the vaults have been vetted. Yet those vaults had hidden exposure to Stream (via Elixir) that users couldn’t see or reasonably infer. I should know firsthand, when I first saw rumblings about Stream being insolvent, I went through and made sure I removed ALL my exposure to it by exiting a bunch of capital pools. However this hidden Elixir-Stream deal left me exposed, and to be clear that was NOT even something I was lending against when I initially entered the Keyring vault. It got added days before this crisis without any warning or notice to me, directly changing the risk profile of the vault without informing pre-existing depositors.

Meanwhile, deposits into all of these Euler vaults stayed open long after the insolvencies were public knowledge. Other protocols (like Compound & Silo) froze markets immediately, reduced collateral factors, set limits on borrows, raised interest rates, and performed liquidations to protect their depositors. Euler didn’t do any of that. There were no warnings, the UI looked normal, and APRs barely even climbed on some vaults, with more users able to deposit into vaults that were already compromised due to the Stream/Elixir contagion.

There is a deeper architectural flaw here. If a curator or market manager can add or expose a vault to new collateral or dependencies without any visible signal to users, that’s a serious attack vector. Users simply cannot protect themselves when these changes happen behind the scenes.

Finally, the risk curator model did not function as the docs describe. Curators are supposed to manage collateral selection, supply caps, and concentration risk. Yet users ended up effectively tied to a single failing dependency and took enormous haircuts as a result. No reasonable risk framework should allow one collateral source to wipe out half (or more, TBD) of a depositor’s position.

All of this shows that the losses were not purely the result of external protocols failing. They were heavily shaped by issues within Euler- failed integrations, misleading trust signals, poor collateral concentration, and a lack of timely frontend warnings/alerts. Because of that, compensation here is not a goodwill gesture. It’s a recognition that Euler’s own systems did not perform as users needed them to.

I strongly support putting compensation options to a DAO vote and will be voting yes with all of my EUL tokens.

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TL;DR

This wasn’t just Elixir or Stream failing. Euler’s Elixir integration broke, verified vaults had hidden exposure, concentration risk wasn’t controlled, warnings came too late, and deposits stayed open while the system was already compromised. Users relied on Euler’s signals and those signals failed. Compensation is warranted and should go to a vote.

[Amethyst]

Hey folks,

Euler will be shortly replying to this proposal. We’re just currently gathering more information and preparing to write a response.

Thank you all for sharing your thoughts here

[aggelo31]

15+ days passed since I can’t touch my funds in USD1 Re7 labs cluster bnb vault and no one at least convincingly explains why this happened

I remind to everyone that this vault had nothing to do with stream’s xusd depeg , no exposure! No xusd can be borrowed or used as collateral from this vault!!

Xusd depeg happened on 28 Oct and ever since vault is illiquid

Now usdx which this vault had indeed exposure happened many days later on 6 Nov !!! nobody explains why funds deposited in this vault wasn’t withdrawable even before Nov. 6 !!!

No measures taken to protect user’s funds like other platform did (silo , lista etc etc)

No explanations given on why vaults with no exposure to xusd was illiquid from day 1

No explanations on why liquidation mechanisms didn’t work

No plans for help depositors retrieve their hard earned funds whatsoever

Euler AND curators must address all this , and the proposal is a step towards the right path , I strongly support it

[fwbkk]

We need a refund, our money can’t just be taken away, the euler protocol needs more safety nets and to keep trust of users must refund everyone. This disaster is not due to lenders, it’s clearly due to Euler and curators who didn’t do their due diligence and didn’t act to protect the lenders.

[daviloutffi]

In my case, for example, I deposited money into a vault after the Steam incident, and even though the vault was active, one day after my deposit withdrawals were frozen and my money is locked.

[Steph]

All you key participants in this fiasco playing the silent or blame game: how can you morally defend your actions? Did you ever had skin in the game in something? This platform and other industry participants that collaborated with you had no problem promoting those vaults in countless targeted social media strategies to it’s users. You want to represent a better and fairer alternative to CeFi and yet you continuously fail to protect it’s most weakest members. And all for personal enrichment and no accountability.

Everyone that has ever been on the receiving end of this charade sees your true cowardness and weakness and trust is not simply regained on long enough period of silence. People are not as dumb as you think and they will remember your actions. You can go fullmode-autism, just focus on the technicals and be an ahole to everyone else but it didn’t help the Uber guy and it won’t help you. Reputation has a nominal value for the normal people and you will soon find out it’s much higher than your game theory playbook suggests.

Do the right thing and allow people to vote on this, it’s the very least you could do.

[fendi]

i have a similar case depositing into a EURC vault with collateral USDT/USDC/AVAX like a week after the fiasco. I have to blame myself not having DD for the bad debt with xUSD, but this one made me so angry as the UI shows no sign on vault page that the collateral had already been exposed to bad debt in an indirect way.

[fendi]

Also guys be aware of scammers sending phishing private messages in the forum

[korvin]

What do you think, guys, have we lost our money forever?

[aggelo31]

Where’s Euler’s team? No answers , no accountability!

Will at the very least allow community to vote?

By silence they are admitting total loss of credibility! Shame such a shame!!

I urge people affected organise and join TG groups for that matter already preparing official complaints and legal actions to authorities

[st0x]

The incident is beyond human error/mistakes.

The curator- Telsoc MEV capital, Re7 and projects such as stream/eilxir both played critical parts in this unfortunate events.

Euler protocol, although having done some risk disclosures/ management, needs to take more responsibilitiesand act proactively.

Simply saying it’s permissionless and modular doesn’t help solve the problem. It will only drive users away from Euler.

I have moved my assets from aave to certain vault in euler previously. As an advanced user, I am able to identify a lot red flags in these MEV Capital and Re7 vaults. The risk reward ratio are not properly reflected in the yield/oracle set up. But casual users/retails won’t be able to investigate and do a in depth analysis. The protocol should and bear the burden of protecting non professional users from the fraudulent scheme by these players. In DEFI, always assuming the worst scenario and develop a proper risk management system from there.

I write this in a heavy heart as I am holding good amount of EULs in addition to impactful LP figures in Sentora vaults.

I used to deposit good amount in Euler Yield as well. After watching this event unfold, the way Euler responds makes me withdraw most of the assets from Euler Yield. The high utilizations in Euler yield is an alarming bell for Euler Dao/Lab. Many users simply lost faith in this protocols now.

Btw, reduce your SP fees if these SPs are not making contributions.

[EulerLabs]

Thank you to everyone who has contributed to this thread. We sympathise with everyone affected by the Stream, Elixir and Stables Labs insolvencies.

We welcome a governance process that gives EUL holders a direct say on what should happen next. Euler Labs will not participate in the vote to avoid any conflicts of interest. We will continue to support the community’s decision-making and share factual updates as they emerge.

On the substance, we want to offer a few points for consideration.

It is important to stress that the protocol operated as designed throughout. Euler is a permissionless protocol and, by design, does not pre-screen economic risk or make judgements about the creditworthiness of assets at the protocol level. Those assessments are made by independent risk curators and market creators who choose which assets to support and how to configure them. Smart contracts can mitigate technical and on-chain risks, but they cannot prevent or remedy off-chain issuer misconduct; no lending protocol design can eliminate that category of risk. Despite claims circulating on social media, there were no protocol-level issues with liquidations or oracles, and Euler DAO had no ability to pause or modify vaults that were risk-curated and governed by others.

The pause mechanism some people have referenced applies only at the protocol level and can be triggered by security partners in response to a potential Euler smart contract vulnerability. It cannot be used to pause or intervene in individual vaults or markets, nor is it intended to mitigate economic risks arising from specific collateral assets; that responsibility sits with vault risk curators and governors. See docs here.

There have also been some misconceptions about vault verification. This process is intended to catch configuration errors that would make a vault incompatible within the Euler system and pose security risks. It is not part of the risk-curation process, and none of the recent issues stemmed from misconfiguration. In order to help protect new users from inadvertently depositing into vaults affected by insolvency, some vaults were temporarily unverified after the fact to remove them from the default UI display. Affected users could still see these vaults in their own interface, and anyone can view them at any time by toggling the verified filter in user settings. See docs here.

Curators on Euler are free to select assets, parameters, oracle sources and collateral models. See docs here. This is standard across permissionless lending protocols including Euler, Morpho, Silo and others. Those choices can and should be debated, but it is important to recognise that a major factor in recent events appears to have been the conduct of the asset issuers. These were not obscure anonymous projects; they were well-known teams backed by major industry investors. In several cases, curators themselves suffered losses in their own markets, which indicates that they believed the collateral assets they listed were legitimate and appear to have at the very least acted in good faith. The collapse in the issuers’ asset values, coupled with their sudden disappearance and refusal to engage, removed any possibility of remediation at source. Curators have been attempting to contact the issuers to understand the status of any bankruptcy proceedings and how affected users might eventually be able to seek redemptions. Euler Labs stands ready to support curators in that process, help relay updates to the community and assist wherever we can.

The proposal under discussion would require the DAO to underwrite user losses arising from third-party actions. Doing so would set a precedent for all current and future markets and would not be compatible with permissionless credit infrastructure. DeFi needs secure, neutral platforms on which to build credit markets, but those markets only work when lenders are compensated for taking risk. If losses were implicitly guaranteed by the underlying infrastructure, incentives would break down and both curators and capital would gravitate towards the riskiest assets, creating dynamics that no permissionless credit system can sustainably support.

We hope these points are helpful as the community continues the discussion and prepares for a formal vote, and we look forward to supporting whatever outcome the community ultimately decides is in the best interests of the protocol.

[shaishav0x]

Lemniscap will not support any proposal for Euler for using its treasury to refund third party mismanagement external to the protocol and we will be voting against any such proposal.

1. The upside and downside of defi is that users are required to do their own diligence. Euler as platform has been very clear about how the protocol works, where the risk lies and the need for diligence.

2. Any loss of fund is unfortunate and the right parties to pursue for any refund are Elixir, Stream, Stables Labs and the curators (Telos, MEV, Re7) of respective pools (who charge users fees for ensuring exactly such things do not happen). We are in complete agreement on their culpability and responsibility here.

3. Euler has no obligation to put anything to vote or make any refund and any attempt in trying to entangle Euler into the refund conversation is wrong should be a non starter. There is precedent to these stuff and Euler should stick to precedent.

4. Even after this latest investment, there are plenty of ‘pretentious’ stable coins being farmed by users who do not do enough diligence. Guess the market will only learn from taking losses.

[lyoha]

I agree with Euler that the protocol itself isn’t at fault. But curators are responsible. Both for the losses and for how they’re handling this situation.

The problem now is that several curators have been silent for weeks, providing no timelines or meaningful updates to lenders who have zero access to their funds. Yet these same curators continue operating and earning fees from their other vaults as if nothing happened.

That’s unacceptable. If curators can vanish during crises but keep profiting elsewhere, the incentives are completely broken.

Euler should take a stronger stance here: curators who fail to communicate or engage during events like this should have their ability to operate on the platform suspended until they meet basic standards of responsibility. Permissionless does not mean curators get to ignore affected users while still monetizing the system.