EXCLUSIVE: Euler Labs CEO On Overcoming Exploit, Re-emergence With Security-First v2

The 2023 exploit of cryptocurrency lending protocol Euler was one of the biggest security incidents in the industry, but with highly strategic recovery efforts from the Euler Labs team, $240 million was returned. Fast forward to 2024, and the modular lending platform on Ethereum has re-emerged with Euler v2, "the credit layer of on-chain finance."

Euler v2 was developed meticulously over a year and went through rigorous security audits. Unlike its predecessor, Euler v1, which was designed for a particular use case, Euler v2 was reimagined as a meta-lending protocol tailored to support limitless use cases for on-chain credit, opening doors for seasoned DeFi users and institutional players alike.

How Euler v2 Works

Euler v2, which went live Wednesday, allows builders to create highly customizable borrowing and lending vaults that break through the constraints of traditional DeFi protocols. Such flexibility ensures a seamless blend of risk parameters, collaterals, features, and assets that transform how lending markets operate.

"At the heart of the protocol is a development kit for deploying ERC4626 vaults. Vaults hold user deposits and are highly customizable. They are agnostic about governance, risk management mechanics, asset pricing, and much else," the team wrote in a blog post announcing the protocol's launch.

Possibilities are endless with the Euler v2, as builders and institutions can develop vaults to meet any strategy or need. For the team, the next-gen Euler protocol is a platform that provides the underlying infrastructure for the credit layer of on-chain finance.

In an exclusive with International Business Times, Euler Labs CEO Michael Bentley shared how the team worked toward re-emergence with a better product, what measures were taken since the exploit earlier last year, and how he sees the growth of the crypto lending market.

Euler v2's Release a 'Turning Point'

Euler v2 was launched over a year after the massive exploit that raised concerns about protocol security. Since then, Euler has worked behind the scenes to deliver a security-first product. Bentley said the v2 represents a "turning point" not just for the Euler team but for the entire DeFi ecosystem.

"With its modular design, Euler v2 redefines the possibilities for on-chain credit, allowing users to build, borrow, and lend with unprecedented flexibility and capital efficiency. By empowering builders to create custom vaults that support a wide range of assets – from traditional crypto tokens to tokenized real-world assets – Euler v2 is pushing the boundaries of what DeFi can achieve," he said.

Furthermore, he noted that the release also underscores the team's commitment to innovation and security, as the v2 comes with more enhanced security features and is also a catalyst for growth in the next wave of DeFi products.

Setting a New Standard in Secure DeFi Lending

Since the exploit of Euler in mid-March 2023, the team has closely been working alongside vault creators to ensure that the next-gen Euler will address previous challenges and also set a new standard in the DeFi lending space. "We're deeply focused on security and have re-imagined the lending space with the best technology available," Bentley said.

He further revealed that significant safeguards were put in place to prevent an attack similar to the 2023 exploit. For one, Euler went through code security provider Certora's verification. "Certora's formal verification has successfully proven the 'Holy Grail' property for the Eueler v2 Vault, ensuring that accounts stay healthy under all conditions. This robust approach would have prevented the Euler v1 vulnerability, providing strong assurance for the security-first Euler v2," he explained.

Bentley reiterated that the main goal of the v2's modular design is to improve the security and risk management of the protocol. The Euler v1 successor went through 31 external audits so far, aside from the collaborative work the team had with other security auditors early in the protocol's development.

Finally, several invariants of the v2 were formally verified "to ensure properties of the system always hold true." Euler Labs also hosted a $1.25 million audit competition with Cantina, a $3.5 million Capture the Flag with Hats Finance, and launched a $1 million bug bounty program. "The project was extensively fuzzed to try and discover hard to find bugs," Bentley said.

What Makes Euler v2 Stand Out?

The Euler v1 successor already has significant features that make it an appealing choice among other lending protocols, but what makes it truly unique from other simpler modular lending protocols is its capital-efficient feature.

"Each vault can accept multiple collaterals, and those collaterals themselves can be lending vaults. This structure provides more yield for depositors and reduces liquidity fragmentation and rate volatility for borrowers," Bentley said.

Outside the borrowing system, builders are provided with an unmatched level of customization that other platforms lack. Builders can build other lending protocols using Euler, "but the reverse isn't true," Bentley noted.

Euler v2 as a Catalyst for Growth in the Market

The crypto lending market continues to grow by the year, and for the Euler team, the v2 will be at the forefront of "tremendous growth in the next decade."

"As decentralized finance continues to gain traction and more users seek out secure and efficient ways to manage credit on-chain, we expect Euler v2 to play a pivotal role in scaling the crypto lending market, pushing it towards becoming a core component of the global financial system," Bentley said.

Euler v2 was developed with an innovative approach that offers high-security, customizable vaults, and integration with a wide range of assets. Such features can be a key driver in expanding the crypto lending market. Its modular design is also expected to attract more institutional and retail users to the space due to its offer of high flexibility and increased capital efficiency.