Euler v2 replaces the traditional lending protocol's "liquidity pool" with "vaults." Each vault's rules are set by its creator or curator, including collateral types, interest rate models, oracle sources, and liquidation parameters. This means before you do anything on Euler, you must understand one thing: you are not facing a unified market, but a group of independent lending markets that can connect to each other.
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The benefit of this design is risk isolation—a problem in one vault does not necessarily spread to other vaults. The cost is that you have more choices and a higher judgment burden. The core of using Euler is learning to judge whether a vault is worth depositing into, and whether the money you borrow could become uncontrollable due to cross-vault connections.
Vaults Are Not "One Pool"—Check Who Manages Them Before Choosing
Euler's vaults fall into several categories. Before using one, make sure you know which type you are dealing with.
Governed EVK Vaults have active managers who can update collateral relationships, borrowing caps, interest rate models, oracle configurations, liquidation parameters, and more. These vaults suit passive lenders who are willing to trust the curator's management ability. But trust requires you to find out who the governor is and what permissions they have. Euler's official documentation clearly states that Euler Labs itself does not operate or govern any governed vaults—these vaults are managed by external governors, curators, and risk managers.
Escrow Vaults are a special configuration verified through the Escrowed Collateral Perspective. They have no governor, no oracle, no interest rate model, and no borrowing. They exist simply as a collateral container. Their purpose is: the assets you deposit are only used as collateral in other vaults, are not lent out, and do not earn lending interest. If you do not want your assets to be rehypothecated, an escrow vault is a cleaner choice.
Finalized/Ungoverned Vaults have no active governor, and parameters cannot be updated. Changing parameters usually requires deploying a new vault. This reduces some governance risk, but it does not mean there are no other risks—oracle routing, connected collateral vaults, and upgradeable factory implementations may each retain their own permissions.
When choosing a vault, at least confirm these items: who the governor is, what collateral is accepted, which oracle is used, what the LTV and liquidation thresholds are, and where the borrowing cap and supply cap are set. This information can be found on Euler's Portfolio page and each vault's detail page.
Lending Operations: Check Health Score First, Then Interest Rates
Euler's lending logic is similar to most DeFi protocols: deposit collateral, borrow assets, and keep your Health Score above 1.
How to understand Health Score. When the raw value you read on-chain shows that the risk-adjusted collateral value is no longer greater than your liabilities, your account may enter liquidation. A Health Score of 1 shown in the interface may be a rounded result—you should rely on the raw value and transaction simulation.
The relationship between interest rate models and utilization. Euler's interest rate models typically use a kink curve: before utilization reaches a certain "kink point," rates rise slowly; after the kink, borrowing rates climb significantly. When a vault's utilization reaches 100%, it means all lendable liquidity has been borrowed out. New withdrawals may not be possible until borrowers repay or new funds are deposited, and variable borrowing and deposit rates will be in the high range of the model.
In practice, you need to watch several numbers on the Portfolio page: Net APY, Safety Score, Collateral Ratio, and Liquidation Price. Before confirming any operation, the dashboard will show updated position metrics based on the amounts you enter.
Liquidation Is Not "One-Click Confiscation," But Repeated Liquidations Keep Reducing Collateral
Euler's liquidation uses a reverse Dutch auction discount: the deeper a position falls below the liquidation threshold, the larger the discount liquidators receive, up to the vault's configured cap. A position that has just touched the liquidation line gets a small discount; a severely unhealthy position gets a larger one.
This mechanism is designed so that mildly unhealthy positions are not overly penalized, while deeply unhealthy positions provide enough incentive for liquidators to step in quickly. Euler v1's liquidation bonus was once below 0.7%, the lowest among DeFi lending protocols.
When liquidation occurs, the liquidator repays part of your debt and receives a corresponding amount of collateral at a discount. The remaining collateral stays in your account, and your debt is reduced accordingly. If the position remains below the threshold after liquidation, it can be liquidated again until it becomes healthy or the collateral is exhausted.
The way to avoid liquidation is straightforward: keep a Health Score buffer appropriate for the position's volatility and liquidity. Watch the liquidation price, LTV, LLTV, collateral price, debt price, interest rates, and available liquidity. Adding collateral, repaying debt, reducing leverage, or closing the position before the Health Score drops further are all available actions.
Exit Risk: Withdrawals Can Get Stuck by Liquidity
Euler v2 withdrawals have an easily overlooked limitation: how much you can withdraw depends on how much liquidity is currently available in the vault, not just your balance.
When vault utilization is low, withdrawals usually work fine. But when utilization approaches 100%—meaning almost all deposited assets have been lent out—withdrawals may not complete until someone repays or new funds are deposited. This is not a protocol failure; it is the normal state of a lending market.
Euler v1's withdrawal interface offered several options: Max (withdraw the full balance or the maximum the pool allows), Safe Max (withdraw an amount that leaves your Health Score at 1.25), and Liquidation (withdraw an amount that leaves your Health Score at 1). The v2 interface may differ, but the core logic remains: if you have outstanding debt, you cannot withdraw all of your collateral.
Before deciding to deposit, check the vault's current utilization. If a vault's utilization stays high for long periods, your withdrawal flexibility will be limited. If you need to be able to withdraw assets at any time, either choose a vault with lower utilization or do not put all your funds into a single vault.
Extra Risks from Cross-Vault Connections
EVC (Ethereum Vault Connector) allows one vault to use another vault's deposit receipts as collateral. This creates composability, but also dependency chains.
One identified risk scenario is: an attacker deploys an EVK vault using a manipulable, low-liquidity oracle, makes it look like a normal vault, and attracts deposits. Then they manipulate the oracle to inflate collateral value, borrow far more than the true value, and drain funds from connected vaults. Several connected vaults accumulate bad debt, depositors suffer losses, and market panic triggers a protocol-wide withdrawal rush.
Euler itself has a security history. In March 2023, the protocol lost approximately $197 million in a flash loan attack (the funds were later recovered). Before relaunching, v2 spent around $4 million on security audits, with 31 audit reports from 12 firms and a $1.25 million bug bounty. But audits cannot eliminate all risks, especially when one vault's oracle can be manipulated and that vault is accepted as collateral by other vaults.
What this means for ordinary users: if the deposit receipts of the vault you deposited into are accepted as collateral by multiple other vaults, that vault's security situation no longer affects only itself. When choosing a vault, pay attention to whether it is widely used as collateral and which oracle source it depends on.
How to Judge Whether a Vault Is Worth Using
Back to the operational level. When you open Euler's app and face a list of vaults, you can check in this order:
First, look at the governor. For governed vaults, find out who the governor is. Euler officially does not operate any vaults—you need to judge the reputation and history of external governors yourself.
Second, look at the oracle. Which oracle source does the vault use? Pyth's on-demand update model allows price updates to be triggered within each transaction, reducing the latency risk of relying on external pushes. But each vault configures its oracle independently—you need to confirm whether the source is reliable and whether liquidity is sufficient to prevent manipulation.
Third, look at utilization and liquidity. High utilization means high yield, but it also means withdrawals may get stuck. If you might need to withdraw assets in the short term, utilization is a number you should prioritize.
Fourth, check whether this vault's deposit receipts are accepted as collateral by other vaults. If they are, its security situation is tied to the connected vaults. Euler's risk isolation design only works when connection relationships are explicitly configured—unconfigured vaults do not automatically share risk.
Euler offers a more flexible set of tools than traditional lending protocols, but flexibility itself does not guarantee safety. A vault's high yield may simply be because it takes on higher risk, or because utilization is already at an extreme level. The standard for judgment is not which vault has the highest APY, but whether you understand the vault's operating rules and what your assets will experience in the worst-case scenario.
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References
- Euler Docs·Lite Paper, page published or updated: 2026-02-27; verified: 2026-09-25.
- Euler Finance·Settings, page date not indicated; verified: 2026-09-25.
- Euler Docs·Vault types, page published or updated: 2026-08-03; verified: 2026-09-25.
- Euler Docs·Portfolio and liquidation, page published or updated: 2026-08-03; verified: 2026-09-25.
- DeFi Saver·Dashboard & Use-case, page published or updated: 2025-11-03; verified: 2026-09-25.
- Euler Docs·Liquidation, page published or updated: 2026-02-27; verified: 2026-09-25.
- Blockchain News·Euler Finance Curated Vaults Hit 100% Utilization on Ethereum, page published or updated: 2025-11-05; verified: 2026-09-25.
- Euler Finance·Euler Primer: The Credit Layer for Programmable Finance, page published or updated: 2026-05-20; verified: 2026-09-25.
- Hindenrank·How Does Euler Finance Work? Risk Analysis, page published or updated: 2026-04-25; verified: 2026-09-25.
- Euler Finance·Withdraw, page date not indicated; verified: 2026-09-25.
- Pyth Network·How Euler v2 leverages Pyth for secure lending markets, page date not indicated; verified: 2026-09-25.
