Euler Finance has unveiled a modular credit layer called Euler v2, nearly 18 months after a flash loan attack caused significant damage to the protocol.
Launch of Euler v2
The new credit layer, known as Euler v2, is a development kit designed for deploying ERC-4626 vaults, allowing users to manage lending risks and build customizable vaults. Users can choose between risk-isolated lending pairs or cross-collateralized vault clusters, providing options for passive lending or fixed-parameter vaults. According to Michael Bentley, CEO of Euler Labs, 'Euler v2 is built to be as adaptable as possible. Its modular design allows for the creation of markets with various risk parameters and collaterals, some of which are more resistant to volatile market conditions.'
Audits and Security
Vaults on Euler v2 are agnostic about governance, risk management mechanics and asset pricing and can hold non-fungible tokens (NFTs), tokenized real-world assets (RWAs) and natively-minted synthetic assets. According to the protocol, Euler v2 has been audited by 12 different cybersecurity firms, generating 31 audit reports. The protocol also held a public $1.25 million post-audit bug bounty without identifying any medium or higher severity issues. Based on a previous announcement, a total of $4 million has been spent on securing Euler ahead of its relaunch.
Attack on Euler v1 and Recovery
Euler v1 was exploited for $195 million in a flash loan attack in March 2023, although all funds were subsequently returned by the attacker. In this attack, the attacker took a large uncollateralized loan and repaid it instantly, manipulating asset prices within a single transaction. The attacker profited from the temporary price changes. In Euler’s attack, the hacker used two accounts: the first borrowed from the protocol and used a 'donate' function, artificially reducing the collateral value in their account and triggering a default. The second account then liquidated the first, exploiting Euler v1’s liquidation discounts to gain more assets than were lost. Regarding the incident, Michael Bentley commented, 'Euler v1 was extensively audited, and the risks of DeFi are extensive. We came out of last year’s exploit stronger and more focused. We recovered all user assets and got them back into the hands of those who lost them, which was a remarkable feat.'
Euler Finance has successfully overcome the flash loan attack on Euler v1, and with the launch of Euler v2, the protocol demonstrates a commitment to enhanced security and market adaptability. It remains crucial for users to be aware of the risks and carefully check the parameters of each market they engage with.
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