The Future of Euler Protocol

Disclosure: This forum thread is solely a place of discussion revolving around the future of Euler protocol to gather feedback from the community. This will not be moving to a vote or act as a signaling mechanism.

Now that redemptions are nearly complete due to the tremendous work of the Euler Labs team and countless other contributors, it is important for the Euler DAO community to look toward the future. We can use this opportunity to restart/reshape the protocol to fit the desires of the community and decide what we want the next version of the Euler Protocol to look like.

Possible Futures of Euler

As a potential redeployment will take time, this is a good opportunity for the community to have an open discussion regarding the future of Euler protocol.

Euler Labs has publicly mentioned they had previously been working on Euler V2, which contained innovations including support for collateralizing long-tail assets, custom collateral factors between pairs of price-correlated assets, and in-built stablecoins. They also mentioned that they had previously researched and developed technology for lending protocols, DEXs, and stablecoins as well as discussed the possibility of moving away from the dependence on Uniswap V3 for activating new markets and into new forms of permissionless markets.

These as well as any other ideas that the Euler DAO community can come up with are all possible futures for the protocol. It is important that we discuss and share what we as a community would like the new Euler protocol to look like.

Initial Questions

Here is an initial set of questions to spark the discussion around a potential relaunch. Feel free to answer these questions or bring up other topics. Any constructive feedback is appreciated.

  1. What did you think were the best parts of Euler?
  2. What new features would you like to see added to Euler?
  3. What would encourage you to return to using Euler again?
  4. What would you like to see happen with a relaunch?
  5. What features could the relaunch offer that would attract the most users?
  6. What needs to happen during the relaunch to win back the trust of the community?

Things To Keep In Mind

  1. Restarting too quickly can be extremely dangerous. Restarting after a hack can attract other hackers looking to steal funds. Rushing a restart could lead to a second hack. For example, PancakeBunny a DeFi protocol that once had over $7 Billion in TVL was hacked for $45 million. In an attempt to recover from this Bunny accelerated their roadmap to add all new features that were expected to take a year and launched them within a month to add “significant new value” post-hack. However, their rush to relaunch led to an immediate second hack which the protocol was never able to recover from. This should serve as a learning example for the Euler community to be patient and allow time for Euler Labs and others to research, build, and conduct audits before a relaunch.

  2. The Euler Labs team has worked extremely hard over the past weeks and is likely exhausted after their tireless efforts to help get everyone’s money returned. We should be understanding that they might need a break to recover from these stressful times. This well-deserved rest, along with the time it takes to implement new changes and conduct audits means this process will not happen overnight.

  3. This is not a vote or in any way a binding reflection of what the future of Euler will look like. This thread simply serves as a space for DAO members to express their views on what they would like to see the future of Euler to look like.

Areas of Research and Development That Were in Progress

(All of this is public information)

  • EulerSwap
    • New DEX with new median oracle
  • New UI
    • PnL charts, leaderboard etc
  • eMode
    • Custom collateral factors between pairs of price-correlated assets
  • Multichain deployment
    • Previously planned deployment to BnB chain and Base as well as discussions to deploy to multiple layer 2s
  • Treasury diversification
    • Lessen exposure to US institutions, exposure to US dollars, exposure to fiat alone (vs adding high-grade or sovereign debt investments).
  • In-built stablecoins.
    • Over collateralized stablecoins like DAI, GHO, etc but with a few Euler twists
  • Support for collateralizing long-tail assets
  • Different form of permissionless markets
  • New oracles
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Thanks for starting this discussion, @Matt_StableLab. Here are some thoughts regarding your initial questions:

  1. What new features would you like to see added to Euler?
    • We believe that adding eMode would provide a lot of value to Euler users since we’ve seen most users deploy correlated asset strategies in the past.
    • We think that relaunching the protocol with supply and borrow caps would make it easier to onboard new collateral assets. Caps could also be used to mitigate economic and smart contract attack vectors.
  2. What would you like to see happen with a relaunch?
    • We think that it would be helpful for the core team to outline different possible release paths since certain features are likely harder to upgrade than others once the protocol is deployed. as mentioned by Michael on Discord, this relaunch provides an opportunity to redesign parts of Euler that were suboptimal. That being said, we believe there is value in relaunching the protocol soon with very few additional features (donation bug fix, caps) and taking more time to release more complex products like EulerSwap and a possible stablecoin over time. As Matt_StableLab mentioned, trying to do too much too quickly could be risky. We also think that waiting too long to relaunch the protocol might be costly compared to releasing a simple patched version of Euler relatively soon to gain traction again and signal to the market that Euler is back.
  3. What features could the relaunch offer that would attract the most users?
    • We think that deploying Euler on BNB and Base chains continue to present strong growth opportunities.
    • The addition of new LSDs as collateral assets and eMode are also very promising.
  4. What needs to happen during the relaunch to win back the trust of the community?
    • The DAO should define an audit process that every new code release will be subject to. We would advocate in favor of having code changes go through competitive audit platforms like Code Arena or Sherlock, where the community can further engage in the review of protocol changes.

Warden’s Relaunch Roadmap

Our team has built multiple analytics and simulation tools for the Euler DAO over the past year. Before the hack, we were in the process of building additional tools for the DAO while also reviewing the protocol’s governance parameters (IRMs, CF, BF) and coming up with a revised risk framework. As soon as the DAO and core team settle on a path forward, we will lead the following initiatives:

  • Update the protocol’s subgraph
  • Launch a new Dune analytics dashboard
  • Integrate the new version of Euler on the Warden simulation platform
  • Publish a proposal with a set of initial governance parameters for Euler’s relaunch

We look forward to the relaunch of Euler and encourage other community members to engage actively in this discussion.

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Thanks @Matt_StableLab for starting this discussion!

Would like to put my two cents:

  1. What is definitely needed is rebranding. Im reminded of the ETHLend case, after de facto failed with their product, they changed the name and business model and now they are one of the leading DEfi protocols. But very few people remember about ETHLenad. Memory in crypto is very short. So we need to think about a new name.

  2. One of the main problems Euler had before is complexity. Lots of functions are good for nerds and pro traders, but the general audience prefer something one click style. If I remember correctly the number of users was peaking about 700. In this regard, I would suggest adding basic and pro UI mode, so that ordinary people could operate easily while advanced users.

  3. Waiting vs rushing. I would prefer to wait a little bit. Moreover, (not sure if it is possible), I would would prefer leaving the previous model aside and focus on something new. What I mean is to follow the GMX example as a leading dapp (btw it has a really simple and user friendly UI) for Arbitrum ecosystem. I am thinking about making Euler a leading dapp for a new L2, for example Base or Linea. Do not not know whether it is a viable idea and whether these L2 would like to push us as their top dapp, but to successfully restart Euler needs to hype.

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Great to get this conversation going now @Matt_StableLab and agree that there is no benefit in rushing a re-release or any sort of new protocol until a full plan is laid out and determined suitable by the community.

I am writing on behalf of Anthias: as far as continuing aspects of Euler, we continue to support Euler’s decentralization and saw Euler’s continual push towards further decentralization as great for the protocol and DeFi overall. Regardless of what is launched / re-launched, emphasis on decentralization would be greatly beneficial.

PnL charts on an updated UI could be very interesting and would be something we would be glad to contribute to if helpful. Just an increased focus on security and transparency overall (like that which Euler was fostering already) will hopefully be beneficial in re-establishing user trust, which will be inevitably somewhat shaken in the wake of any sort of hack / exploit, regardless of circumstances.

We agree with @Shippooor that trying to do too many products with this new launch could be counterproductive, and it might be more beneficial to the longterm success of Euler to focus on the core product, make any minor improvements along with bolstering security where possible, and then add additional products via a roadmap over the months and years to come.

Looking forward to hearing what other members of the community have to say here.

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Thank you for starting the discussion, I guess everyone in the community is curious about what’s coming next. As was already mentioned in Discord and here – it’s a great opportunity to reflect and revise past decisions and approaches that might not be well-suited for the current market state.

I believe that two main OKRs should be: (1) re-gain prior market share and community trust and (2) scale community and ecosystem growth.

I’m confident that whatever we see in v2, will definitely impose back the competition to the lending market. Also, many can consider both a protocol and a project battle-tested however for a more broad audience value weighted lindyness is required.

As per specific practical actions and protocol/project priorities, I’d suggest the following:

1. Risk-adjusted incentives alignment
Unfortunately, history showed that solely incentivizing TVL without sufficient recourse and backstop (reserves, insurance fund, circuit breakers, printing model, faster emergency shutdown, etc) is potentially fatal. If the hacker hadn’t returned funds, the hole would’ve been ∼ x37.1 higher than reserves+sherlock payout (2m+4.4m) or ∼ x5.9 higher than reserves+sherlock payout+stables in treasury (2m+4.4m+28m). This essentially means that it would’ve been not possible to close the gap via printing+auction (e.g. Maker’s model) or any other external funding.

So the trivial yet necessary solution might be to launch an insurance fund (e.g. Aave’s model) and incentivize it. Also, not a novel idea, but allowing to deposit weth<>eul Uni position might kill 2 birds with 1 stone.

Sidenote: also adding the ability to vote/delegate with Uni weth<>eul position might kill the third bird as in token liquidity not spending treasury funds on it.

2. Multi-chain expansion, but done more smoothly
The general idea here is obvious, especially with eip-4844 coming, so it’s definitely one of the key opportunities for growth. However, one could argue that the pre-launch of a separate instance on BSC was debatable and many questions within the community were raised to design a more coherent multi-chain strategy.

Considering that alternative solutions and protocols in general already started their path to seamless multi-chain experience (i.e, Aave portals, Compound III, Uniswap bsc debate), I would suggest that Euler also has to have the ability to transfer assets between markets

3. User personas
I would argue that DeFi protocol should win the hearts and minds of OG advanced users and protocols first and then scale on a broader audience. So the path can look like this: mainnet with more complicated ui and analytics–>arbitrum/optimism–>bsc + simplified UI. Euler v1 definitely did a great job here that’s why I think that re-launch should be done in the same way.

4. Governance, grants, and community incentives
This is always a highly debatable and mainstream topic because (1) ahh I’m coooordinating; community ownership; decentralization, but also (2) everyone knows that team and stakeholders almost always have the final word, but that’s totally fine and moreover it should be this way in the beginning.

There were several initiatives to launch grant and delegate incentive programs, so I think it was the right direction.

Summary:

Circling back to the @Matt_StableLab questions, the things I like the most:

  • rigorous protocol risk management;
  • sophisticated UI, simulation mode, comprehensive protocol data, and personal user analytics;
  • dynamic and adaptive project style; integrations with niche protocols like Squeeth, Yield.

The key areas of improvement and growth could be: a backstop/insurance fund, seamless multi-chain experience, and community incentives.

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1. What did you think were the best parts of Euler?
I really enjoyed the ability to access lending yield on long tail assets. A big part of this was experimentation on utilizing on chain oracles to rate risk. Being able to list an asset for loans with only a permissionless LP was an incredible opportunity for longer tail asset providers.

Further really enjoyed the integration of Euler lending in structured products. The way that products could be built on Euler without engaging in Euler governance was truly special.

2. What new features would you like to see added to Euler?
I am very much looking forward to Eulerswap advancing the oracle space and reopening the opportunity to safely deploy debt markets with minimal governance overhead.

The default amount of debt able to be drawn was a limiting factor. As such I look forward to eMode and other innovations which could allow more capital efficiency in borrowing.

I’m personally not overly excited about supply and borrow caps. I think they are governance heavy and will be a distraction early on.

3. What would encourage you to return to using Euler again?
Euler did a fantastic job both minimizing risk, and recovering from exploit. Having a fresh audit of the current code state and an plan for minimizing the impact of upgrades would be very helpful.

The biggest risk to Euler is having too big a vision and constantly iterating towards that. While hugely inspiring, in retrospect it allowed for risk to creep in through less holistic review of individual upgrades.

I think it would inspire confidence to provide a retrospective of how the attack vector was introduced, and how the circumstances which allowed for its introduction could be defended against in updates moving forward. (I wonder if it is possible to modularize in a way that reduces surface area impacted of most upgrades?)

4. What would you like to see happen with a relaunch?
Really depends on audit timelines for various areas of development.
Ideally relaunch does not take too long. It should not initially offer gauge rewards. We don’t want to incentivize taking on extra risk. Let the market feel it out.

I’d like not to rush additional features but also cannot become stagnant. I think it’d be really helpful here to understand dependencies and perhaps get a discussion on what features bring the most direct benefit to the Euler ecosystem.

To me a new Stable feels lower priority, but could be super useful in kickstarting demand if lending supply is low. However it doesn’t service ETH/LSD plays, which makes emode feel more important to have sooner.

Launching with a fresh UI update could be useful way to “feel” different, and soft break association with the exploit. In this sense I agree with @Raslambek that a new name could be appropriate as well. Having a new, more user friendly interface and some fresh branding could be a strong way to reintroduce the protocol to the community under a new light.

5. What features could the relaunch offer that would attract the most users?
I think what Euler excels at is being a protocol any other protocol can tap into relatively simply.

Having more collateral features would no doubt see demand as its currently very under serviced, but that may be too much too fast. eMode, and non chainlink oracles I think would be very promising. I believe always best to start on L1 and grow out to L2s.

6. What needs to happen during the relaunch to win back the trust of the community?
Largely think we need to make sure framing isn’t that Euler now has a backstop or will always achieve 100% coverage in the event of cataclysmic loss. No insurance product can do that in defi.

We can set expectations as to the amount of risk which can be covered, but I don’t really see backstops being super effective. Need people to buy Euler at its weakest or drain funds allotted for other public goods.

Perhaps lean into the memes and legend about how Euler is Batman, a world class detective with world class technology kinda deal. Criminals best beware Euler will find them if they try.

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Some notes:

Agree with @vadym but would suggest a balancer 80:20 pool instead of a 50:50 pool.
This could even be with wstETH as the pairing. I’m sure Seraphim would like that.

Like @Raslambek suggested, this is the perfect opportunity for a rebrand. To rise again from the embers.

To Matt’s questions:

You guys have done insanely well to get the funds returned. I want to thank you all for your efforts in this.

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I agree with those above that a new name will have to be taken to facilitate the forgetting of what happened.
I also propose to multiply token circulation by 100 to 1 at the present time, this will facilitate the adoption of the token by newcomers who will think more about the price of the token than what it can actually bring.
I also suggest giving more utility to the token (veEUL, EulerSwap revenue sharing, etc…)
I also agree that we need to simplify the UI as much as possible while keeping a lot of features for those who want to use them.
I will always be against Euler Labs creating a liquidity pool for the token.
I have full confidence in the team to be innovative but I am not against being able to relaunch something now while the other things are ready to be released, if Euler is on a break for too long this could be detrimental.

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I very much agree with the above. The exploit is a reminder that security is key, and Euler with the donation bug fixed would be a safer system than we ever had.

Of course that does not preclude UI improvements and new protocol features, but I don’t think waiting for those should significantly delay a relaunch.

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Congrats on the Euler team for all their efforts in returning back stolen assets to users. I’ve always thought that Euler has been at the forefront of innovation for lending protocols. My favorite feature was their soft liquidation mechanism. I also think borrow factors are a really great parameter that just makes sense on a lending platform.

As for the relaunch, I agree that restarting too quickly can be dangerous. I propose relaunching the core assets first (USDC, USDT, DAI, ETH, WBTC, etc…) and then having governance reenable the long-tail assets over time. This will help ensure ample liquidity and trust before enabling the full product again. Users need to understand that, unlike other lending market hacks, Euler is designed to be robust against potential long-tail asset manipulation. One rogue asset was not the cause of the hack. But by relaunching without them at first, I think it could mitigate some of this worry and make Euler appear safer to deposit into again.

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  1. What did you think were the best parts of Euler?
    The permissionless access to long tail asset and visibility of potential risk related to it. This is the key to create fully permissionless defi ecosystem without gatekeeping model

  2. What new features would you like to see added to Euler?
    I would love to see differentiation between the permissioned and permissionless aspect of the lending market. Higher connectivity between V2 and baby euler where there’s big lending market where the liquidity should be protected and other small lending market where allows user to take speculative position on long tail asset but with isolated risk.

  3. What would encourage you to return to using Euler again?
    Upgradeable smart contract has proven to be costly and risk, needs some proper planning for it. The SC is always gonna be as weak as the last update and will become potential single point of failure.

  4. What would you like to see happen with a relaunch?
    Higher rate of communication. Nothing is more reassuring than to hear the protocol is communicating with their community.

  5. What features could the relaunch offer that would attract the most users?
    baby euler

  6. What needs to happen during the relaunch to win back the trust of the community?
    Higher degree of communication for sure. There’s been a lot of silent during the exploit and needs to be reversed during relaunch

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Thanks to everyone for your comments and feedback. The Euler community is a special one, and I firmly believe that it will bounce back from the trauma of recent events. The Euler protocol will rise again and regain its place as one of the most loved and respected protocols in the industry.

Here’s a few of my personal thoughts on some of the comments I’ve read above.

Does Euler need a rebrand?
I think the brand needs freshening up, but not completely overhauling. The recent incident drew negative attention from far and wide, there is no doubt about that. But there is no need to try to hide from the past. Euler was recognised by most people in the industry as a project that took security extremely seriously. The protocol and its front-end were heavily audited at great cost. It had a significant bug bounty in place and sought out insurance. Many independent auditors and white hat hackers tried and failed to break Euler and were very complimentary about its code. The Euler Labs team wrote research articles and advised other projects about the risks of decentralised oracles, the risks of the Merge, the risks of liquid staking derivatives in lending protocols, novel types of reentrancy attacks, and much else. All of this is why, when Euler was attacked, some of the best security experts in the industry volunteered their time and expertise to help with the recovery. Ultimately, Euler was not the first, nor will it be the last, protocol to suffer from a vulnerability. It is very difficult to find a lending protocol that has not been exposed to a vulnerability at some point. This industry is completely uncompromising. And as painful as that can be at times, I maintain that it is exactly this characteristic that will lead to the creation of an open efficient anti-fragile financial system in the long run. Euler will be a major part of that.

What new features should be added to Euler?
The OP did a great job of summarising the features that Euler Labs were already working on for a v2 deployment of Euler. Some of those were largely complete already, whilst others still need a little more work. Current research efforts are centred on further exploring ways to isolate risk for users in Euler whilst maintaining capital efficiency. There also is an opportunity now to further explore links between EulerSwap and Euler. Can they directly benefit one another?

What’s the timeline for a relaunch?
I don’t think anything should be rushed, but I also don’t think we’re a million miles away from having something to bring forward for a relaunch either. A new round of audits will certainly be needed and discussions have already taken place with leading auditing firms about when that can happen. Lead times seem to be anywhere between 1-6 months depending on the firm right now.

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Thanks @Matt_StableLab for starting this discussion. First of all I want to appreaciate the Euler team on doing a phenomenal job on getting user funds back! :rocket:

I agree with the brand refresh comment which many members have voiced here. This is a common practise and has proven to work for other teams.

The team should focus on identifying who the main user is and where does this user live, what does this user want etc…(DeFi persona as someone pointed out). While the existing Euler iteration was a great leg up from existing lending/borrowing protocols, I do think that atleast retail users seek lower TX fees and privacy, hence for the future, I’d suggest launching directly on a zk L2, ideally with privacy features.

While I did appreciate the permissionless nature of the protocol, the team should weigh the pros/cons of starting out with a security council with emergency powers. An ML model trained on defi exploits data could help alert this council about future threats and help mitigate attacks.

As we have seen simply auditing for code errors maybe insufficient. The DAO should consider funding two or more white hat teams to run penetration testing after every major update. These teams should especially monitor economic, governance or other non-code attack vectors.

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@Matt_StableLab first of all i want to say i appreciate you and the team and how you never gave up and but still kept on building, despite all odds. This is Just summary of what i think:

-DO NOT change the name Euler, You cant go about changing names when a small mishap which you recovered from happened, rather you come back strong and in glory. Besides “Euler” is the only name that fits, no other name beats it.

  • DO NOT change the tokenomics, everyone one talking about “Ve” model as if thats gonna bring any significant change just because every other defi project is doing it. Be unique Euler and dont follow the herd. Come up with a staking model that is unique for the holders.

-Just keep building and doing what you are doing. you will come back stronger than ever. cheers