The $EUL Thesis: Meta-Protocol Optionality
$EUL has broken into fresh price‑discovery, tagging $15.0 (+20 % vs. the September‑2022 past all-time-high). Our thesis: Euler is positioned to become the DeFi operating system that welds trading, lending, and leverage onchain. We believe it’s a misunderstood meta-protocol improperly labeled as a hybrid money market with a DEX. The unfair advantage for their competitive edge stems from an intricate modular design consisting of key primitives that combined together result in critical and highly sticky infrastructure for token issuers and asset managers. With over $1.3 billion borrowed and a FDV shy of $400 million, we are looking at a Borrowed/FDV ratio of >3x (114% greater than Maple’s $SYRUP and 150% greater than $MORPHO) for the credit market with the highest utilization rate globally and the highest number of vault combinations.
Building with intentional optionality is in the DNA of the team, and this flexibility is also embedded in the buybacks fueling $EUL token economics. Fundamentals are accelerating at an opportune moment as ownership becomes increasingly dominated by liquid funds. Because upcoming emissions are modest, transparent and tied to growth incentives, the float is effectively hard-capped while activity scales. The result is sticky TVL, versatile growth strategies across ecosystems, widening fee capture, and a moat that strengthens as markets diversify across stablecoins, RWAs, LSTs, PTs, and other exotic pairs. This has started to materialize in price appreciation, up 91.2% in the last 90 days and 72.9% in the last 30.
The $EUL token price just cleared its historical ceiling, and even though the asymmetric profile is not the main driver anymore, we see a rare blend of technical leap, favourable tokenomics, and an experienced team that has rebuilt credibility into a stronger brand. In price discovery, building a position here is a bet that market structure matters: when a protocol lets the same collateral power swaps, loans and leverage, liquidity deepens, fee revenue rises, and Euler becomes a more attractive foundation to build structured products and protocols on top. The cap-table no longer having oversized VC blocks reduces potential sell pressure, and $EUL currently stands out with a P/F (fully-diluted) multiple of ~5.2x, in contrast versus that of peer protocols like AAVE (8.2x), Morpho (18x), or Maple (40x).
Supply is known and strategically allocated, revenue is compounding, and the rails for capital efficiency and yield strategies are unattainable to isolated monolithic entrenched competitors. We see this flywheel turning Euler into the indispensable liquidity backbone for Ethereum, L2s, and EVM chains. With EulerSwap going live and growing dominance in market-share KPIs, we see in $EUL an opportunity to bid not only on the most versatile powerhouse for strategy creation onchain but also on a relative-value basis that looks underrated relative to both peers and proxies in fleeting narratives across the board.
Key Takeaways
- Our Euler thesis is a bet on a meta-protocol that is both misunderstood and mispriced as most ignore the optionality premium that comes with being a meta-protocol with an active buyback program and seeing substantial improvements in fundamentals.
- Euler is the lending market with the greatest diversity and options for yield strategies, consistently featuring the highest utilization and currently trading at a market cap just below $270 million despite having a borrowed/FDV ratio over 3x (~$1.3 billion borrowed from the protocol while $EUL trades ~$385 million FDV).
- $EUL ownership is shifting from VC to liquid funds dominance as the fundamentals make the asset increasingly attractive, with new tokens entering circulation strategically via rEUL incentives.
- P/F (FDV and MC) valuation multiples have compressed by ~80% YTD, now trading significantly below their historical averages. This highlights a meaningful discount and frames the quantitative narrative in the trade.
- Divergences in price/TVL/fee correlations help distinguish between moves driven by fundamentals versus narrative.
- Borrowing activity is also cyclical and expected to reverse in downtrends. With Euler’s utilization rate being a standout metric versus peers, the borrowed/FDV ratio should be monitored across the board for signs of market-wide de-risking.
Background, Team & Investors
From a 9-figure exploit to a case study of resilience, the team resisted the temptation to “rebrand and move on”. Where other protocols would pivot, issue a new token, and paint a new chart, Euler opened an onchain dialogue with the attacker, collaborated with law enforcement, and—given the price appreciation in stolen assets, mainly $ETH—ended up recovering ~240 million of the ~$197 million originally lost in a sophisticated flash-loan attack impacting Euler’s v1 lending pools. Two years of “quiet shipping” followed, culminating in the launch of Euler v2 and most recently EulerSwap. Like Maple’s $SYRUP turnaround, the episode is now read as proof‑point: a team can get knocked down and still come back with a stronger brand.
Euler’s initial VC funding for runway was raised well ahead of its v2 relaunch, with $40.8 million raised across three rounds—seed (December 2020), Series A (August 2021), and Series B (June 2022)—from top-tier investors like Paradigm and Haun Ventures as well as market makers like Jane Street Capital and Wintermute (strategic undisclosed round in April 2025). This budget ensured ample runway and patience to innovate during the bear market as morale was recovered after the hack. Today, all major early investors are fully vested, eliminating overhang from large token unlocks that could trigger sell pressure. This paved the way for a transition of ownership towards more long-term aligned liquid funds while future token emissions are reserved for targeted growth initiatives that drive protocol revenue and fee generation. $EUL annualized incentives amount to ~$10 million annualized, in contrast to AAVE’s ~$68 million and Morpho’s ~$26 million.
Leadership is led by co-founder and CEO of Euler Labs Dr. Michael Bentley (PhD Mathematical Biology at the University of Oxford and Post-Doctoral Research Fellow specialized in evolutionary game theory) along with co‑founders Doug Hoyte and Jack Prior, bringing together decades of full-stack technical experience. From the very early days, their actions have reflected a preference for building highly-composable open-source DeFi primitives, demonstrating a level of conviction in their team’s edge that rendered imitation non-threatening. No matter the setbacks, the team has consistently signaled confidence in their belief that the true value of a protocol lies in execution and continuous improvement, demonstrating that they viewed competition as validation of their ideas rather than a risk to their position.
New hires echo the appreciation to the team’s dedication: “I’ve been here a few weeks and haven’t found an idea the team hasn’t already prototyped; half the time there’s an old repo with the experiment”. This obsessive R&D loop has been critical for rebuilding trust after the 2023 exploit. Testament to this are v2’s EVK (Euler Vault Kit) and EVC (Ethereum Vault Connector) for modular collateralization and interoperable borrowing vaults, FeeFlow for protocol-aligned value capture, capital-efficient liquidations and one-click looping, subaccounts and spy-mode for institutional-grade position management and auditing, and the list goes on.
$EUL still trades mainly on DEXs and a couple of CEXs like Kraken, HTX, MEXC or Kucoin. Given the original supply allocation, this suggests that the team may have been reluctant to give up a large share of their token supply for Tier-1 CEX listings when the opportunity for liquid buyers was most attractive. This likely rejection of predatory market-making terms now makes it possible to reserve that supply for strategic incentives that boost TVL growth as the protocol expands across chains and introduces EulerSwap. Liquid funds look upon this as a deliberate strategy to compound credibility with capital allocators while letting builders permissionlessly spin up vaults and exotic credit primitives unachievable anywhere else.
Capital Efficiency Levers: Lending Meets AMM
Following its 2023 setback, Euler conceptualized the next iteration of the protocol with optionality and flexibility as the core pillars. This was a deliberate choice for upholding the customizability that current onchain asset managers demand for the execution of increasingly sophisticated DeFi strategies. Euler v2 is a modular and permissionless credit layer that lets anyone deploy ERC4626 lending vaults via the Euler Vault Kit (EVK). All vaults are interoperable with one another, meaning that vaults can support borrowing and be accepted as collateral for loans. The protocol is now deployed on 11 chains with $1.3 billion borrowed across 450+ vaults.
Every vault is a self-contained risk-silo that still remains interoperable across the ecosystem. Creators choose their own oracle, interest-rate model, collateral whitelist, and optional hook contracts at deployment along with other parameters, and Euler’s Ethereum Vault Connector (EVC) stitches vaults together atomically batching cross-vault actions, enforcing LTV values, and providing the rails for composability. Because lending vaults automatically double as liquidity hubs for EulerSwap pools, the protocol can offer swaps, leverage, and yield from a single capital base.
The combination of credit vaults, collateral-only vaults, and EulerSwap—paired with the ability to deploy different vaults types for governed curation or ungoverned immutable vaults—behaves like a unified liquidity layer that trusted curators such as Gauntlet, Re7, or Alterscope already treat as their default management venue. Besides curators, asset issuers and DeFi protocols like Usual, Resolv, or Treehouse also rely on Euler to grow the circulating supply of their tokens. Protocols can build structured products themselves or partner with vault curators to launch ERC4626 vaults and create demand and yield sources for their tokens without waiting for inefficient DAO collateral whitelist approvals or tedious time-consuming governance processes. From a single venue, builders can bundle leverage, hedging, fee logic, or custom hooks out of the box with full control over risk parameters. This is something that monolithic lending markets cannot match or scale.
Euler v2’s modularity not only brings benefits in terms of composability and customization; it is also the key that unlocks the capital efficiency flywheel upon which other strategic efforts can be built, with EulerSwap being the most recent and clear example. EVK is the factory, EVC is the substrate, and EulerSwap redefines the asset issuance playbook building on top of Euler’s existing primitives. This comes at an opportune time when stablecoins are top-of-mind, along with other targeted efforts involving LSTs, LRTs, PTs, or RWAs. Asset managers are already deploying capital in Euler, and curators enjoy the flexibility of this open field to show their competitive advantage. Free from the friction of governance-imposed delays or approval cycles, Euler becomes the launchpad to spin up new markets, unlock new yield opportunities, and capture early-mover advantages for emerging DeFi protocols and onchain capital allocators, whether they are building yield aggregation strategies, issuing assets, or trying to make a name for themselves as strategists or curators. Building on this, we anticipate a growing wave of firms entering DeFi in the wake of recent U.S. regulatory shifts. As alpha gets diluted, these new entrants will turn to open permissionless lending protocols beyond the dominant governance-gated players, gravitating toward vaults and yield strategies uniquely available on Euler.
The same design choices that make Euler flexible also make it structurally leaner on capital. Levers such as cross-vault rehypothecation or the dual use of liquidity positions and collateral turn modularity into measurable capital efficiency improvements over incumbent structures. EVC nets collateral and debt across any combination of vaults, and every lending vault can simultaneously be an EulerSwap liquidity hub. The result of vertical integration is the fastest market-creation cadence, monopoly over long-tail assets, and a unified liquidity layer that avoids traditional AMM vs. money-market fragmentation while keeping liquidity circulating where marginal utility and fee generation are highest. The outcome is seamless onboarding for managers, issuers, and users that benefit not only from a consistent interface but also from cross-product synergies that result in increased revenue streams for the underlying protocol. We see this with Robinhood aiming to become the all-in-one finance app, or Coinbase as the all-in-one crypto app. The same applies onchain with protocols that implicitly create ecosystem lock-in with high switching costs as a result of providing the rails for faster innovation. This is the essence of being “so good they can’t ignore you”, as the vertically integrated approach becomes the new standard, and users begin to demand it everywhere.
With EulerSwap, the protocol holds LP reserves directly in lending vaults. Those deposits concurrently perform three functions: i) facilitate swaps and earn trading fees, ii) enable loans and earn interest fees, and iii) can be used as collateral for borrowing. Instead of parking the capital in a standalone AMM contract, a quote asset like ETH or USDC lives in a lending vault and liquidity can be borrowed on-demand. Thus, a single vault can act as a liquidity hub for multiple pairs at the same time.
EulerSwap is a clear example of composability and capital efficiency working together to unlock a triple-yield stack. Because every LP deposit is routed straight into an ERC4626 lending vault, the same stack can clear trades, accrue lending interest, and count as margin collateral. Since vault balances are recognized as collateral, a single underlying asset can power multiple pools at once, turning the lending layer into a protocol-wide liquidity hub. Liquidity never sits idle as the same underlying deposit can underwrite swaps and loans as well as be used for leverage. This allows teams to seed one-sided liquidity, borrow the quote asset on demand (still earning lending yield when liquidity is not needed for swaps), and go-to-market fast avoiding the hustle of bootstrapping DEX liquidity at the expense of inflationary emissions in incentives to offset impermanent loss (negative expected value).
Every design choice comes with tradeoffs, but Euler is a great example of how a protocol can take a semi-agnostic unopinionated approach and scale usage by letting depositors, borrowers, curators, and LPs self-select the vaults that match their risk appetite for a specific use case. This is achieved in a non-paternalistic (hands-off non-prescriptive approach) opt-in manner instead of having every participant’s choices be restricted to abide by a protocol-wide compromise. For instance, Aave’s top-down paternal governance and Morpho’s immutable core sit at opposite poles. However, Euler lets each vault be customized as hands-off or hands-on as its owner wants. Every vault having the option to be used as collateral, this not only increases capital efficiency via rehypothecation, but also increases the innovation surface to an extent that monolithic designs or silos of collateral-debt pairs cannot match.
As far as token economics goes, current emissions are issued as rEUL incentives. This is a locked form of $EUL that converts to $EUL 1:1 over a 6-months period. Users can claim 20% as liquid $EUL immediately but are subject to linear vesting for the remaining 80%. When users choose to redeem early, the unvested portion is burned. This gives supply predictability and allows for a continuous allocation of incentives to drive user behavior based on what the protocol is looking to achieve at any given moment, such as growing liquidity in a new chain or incentivizing specific markets. The mechanism is also flexible enough to steer liquidity where it’s needed most at any point in time while deterring mercenary farming and aiming to convert incentive spend into sticky TVL.
On the demand side, $EUL’s value accrual is contingent on protocol buybacks via Euler’s Fee Flow. This mechanism is a reverse Dutch auction that auctions off protocol fees accrued in different tokens in return for $EUL, which is currently held in the treasury. The result is programmatic bid-pressure for $EUL, scaling linearly with revenue. Because the treasury receives $EUL instead of a basket of disparate tokens, governance can then decide whether to burn tokens, recycle as rEUL incentives, or re-deploy $EUL Protocol-Owned-Liquidity (POL) into new growth initiatives. This revenue-to-$EUL pipeline is also an open-source primitive built by Euler Labs and that other protocols could easily adopt for their own governance tokens. Following Euler’s design philosophy, it’s an asset-agnostic and unopinionated public good that adds value to DeFi as a whole. Instead of juggling dozens of different tokens like yield aggregators used to do in the past, FeeFlow allows DAOs to sell that inventory and receive a single liquid asset they can burn, hold, or redeploy on demand.
The benefits of the EVC and EulerSwap synergy compound as the protocol revenue funnels through Euler’s FeeFlow to convert usage directly into token demand. As the protocol auctions off fees accrued in different tokens across vaults and buys back $EUL, these newly acquired units are then kept in the protocol treasury for the DAO to vote on whether to burn the tokens, recycle as rEUL incentives, or swap it for other strategic assets.
Composability & Optionality Blocks
Euler is all about capital‑efficient, permissionless credit engineered for composability. The network effects are the result of the protocol’s central role as DeFi infrastructure. By design, the protocol is capable of onboarding any asset and pushing innovation to the edges. As more bespoke vaults launch and more curators enter the scene, the switching costs compound. This accelerates further as more protocols build on top, locking in builders and liquidity in one place. Protocols like Twyne (credit delegation) or flower.money (in stealth; synthetic products asset management) are already building on top of Euler behind the scenes. Meanwhile, risk curators like Gauntlet no longer monopolize the risk and capital management space, which is welcoming new players and becoming increasingly competitive. Take Objective Labs as an example of a firm that was founded by former Euler core contributors and have recently led the Frontier initiative that has gained $150M in TVL within a month while EulerSwap was still in beta. Vault curation has become more fiercely contested and these teams can now enjoy the freedom that permissionless infrastructure brings. That wasn’t the case in DeFi until Morpho Blue came out with a curator-first approach and gave the opportunity for new players to challenge the established operators that had been dominating the AAVE and Compound governance forums. Frontier has already set the stage of a playbook that is unlikely to be ignored by strategists, risk curators, or anyone involved in the onchain asset management space. All this while Euler remains at the core as the fertile ground for DeFi innovation.
Frontier & Asset-specific Complexes
Built by former Euler Labs contributors, Frontier is the first large-scale application showcasing how the lending and DEX sides can work together. Conceived by Objective Labs, it packages Euler’s lending vaults, swap routing, and cross‑vault netting into an off‑the‑shelf “correlated market” template dedicated to a single stable‑asset complex. Instances offer a borrowable asset which, given the price correlation with the collateral, allows for >90% LTV and can support strategies with PTs or price-correlated yield-bearing collateral.
Because every vault remains isolated, a protocol can push leverage on its own asset without contaminating systemic risk, while EVC still nets collateral and debt across the wider Euler graph. By design, the integration with EulerSwap replaces the fragmented “pay incentives to bribe for DEX liquidity and find your way through the governance forums to get your asset accepted as collateral”. For stablecoins or LST issuers this lowers the cost of capital by several orders of magnitude. Lenders can earn yield isolated to an asset, and borrowers can express basis trades or yield arbitrage. EulerSwap further recycles every idle dollar, allowing LPs to supply assets to a trading pair, have those assets deposited into Euler Vaults, and start facilitating swaps, earn lending yield, and have the LP be used as collateral.
In its first month Frontier crossed $150 M in deposits across 10 markets. Puffer’s pufETH silo amassed $60.6 M against ETH, Falcon Stable drove $35.2 M into sUSDf versus USDC and PT‑sUSDf, Midas‑backed mMEV and mEDGE captured a combined $35 M, an Yala’s PT‑YU pool reached $10 M, marking the first lending venue for that token‑set. These numbers arrived with zero governance overhead and help allocators gain conviction in the thesis that specialized, high‑LTV stable silos can outcompete legacy “one‑size‑fits‑all” money markets on both speed and depth.
Strategically, Frontier widens Euler’s moat. It locks sticky, yield‑bearing TVL into the protocol, drives swap volume through EulerSwap, and showcases how modular vaults plus the EVC substrate can spin up domain‑specific credit rails in days and not months. Each new Frontier market adds collateral, borrowers, and fee flow without burdening Euler governance. The result is a flexible credit toolkit that becomes the default launchpad for any team issuing or managing assets, delivering lower funding costs for protocols, more yield opportunities for users, and a growing revenue base for $EUL buybacks.
The Meta-protocol Advantage
Frontier is just the tip of the iceberg as a case study that illustrates how layers being added on top of Euler’s foundation can seamlessly expand the protocol’s reach in a positive-sum way that grows peer protocols across different sectors. Mistaking Euler for “just another lending protocol” or even comparing it to other hybrid lending-DEX designs is a sign of how many misunderstandings are seeding a cloud over its unique value proposition and role in DeFi. This lack of market consensus or understanding around the protocol contributes to its short-term attractiveness. Since price often leads narrative, we’ll likely see broader market coverage emerge as the asset re-rates, raising its mindshare and feeding the feedback loop.
Euler transcends the “lending-protocol” or “DEX-with-lending” labels. The simplest way to illustrate this is with the example that Euler can replicate AAVE and Morpho on top of its vaults infrastructure, but the opposite is not true. Its extensive customization surface turns it into the broadest state layer for deploying and managing assets. In addition to that, its ability to offer such high-levels of capital efficiency make TVL stickier and lowers the costs of capital while increasing switching costs. Simultaneously, Euler fast-tracks the go-to-market strategy for other builders and protocols that gain access to unified deep liquidity and capture the network effects of $1B+ in assets. Testament to this capital efficiency is the sustained high utilization of the protocol, consistently surpassing its peers and standing out as the only player above 50%.
Euler is infrastructure for others to build on. There is a case to be made where the network effects from this composability benefits are currently being heavily discounted. That approach completely ignores the optionality value of Euler hosting vaults that competitors simply cannot support. Building credit markets as an ensemble of ERC4626 vaults, or making positions in EulerSwap fungible is all part of a greater vision that was conceived as far back as 2022. It’s the interconnectedness of this liquidity graph that constitutes Euler’s moat and architectural edge as a meta-protocol on which competing lending, DEXs, or stablecoin designs can coexist and interoperate. With built-in demand sinks for $EUL, this translates into a structurally greater optionality value that current multiples aren’t fully capturing.
Expanding the Liquidity Graph
We have already explained how EulerSwap helps to turn liquidity that would otherwise sit dormant inside AMM pools become productive by earning lending yield inside Euler vaults. While nothing seemingly changes for swappers, this is a game-changer for LPs. Today, most liquidity for an asset is supplied by protocols themselves, often aiming to grow it with inefficient incentives; teams pay LPs with emissions hoping that the rewards APY is enough to offset impermanent loss (IL), but this is an unsustainable practice that cannot be trusted in perpetuity. Teams have learned from experience that renting liquidity through short-lived campaigns tends to end up with the rewards being dumped, leading to sell pressure. This is where Euler steps in and demonstrates that they are not jumping on the lending<>DEX bandwagon.
Unlike in other DEXs, EulerSwap pools turn idle cash into productive liquidity, leveraging Uniswap v4 hooks to borrow exactly when incoming trades take place. Indirectly, EulerSwap becomes a launchpad and redefines what used to be dominated by incentive bribes into a self-funding mechanism for protocol teams. Instead of renting depth through unsustainable liquidity mining only to see the rewards being dumped, teams can now bootstrap liquidity with single-sided deposits in their own token and borrow ETH or USDC as a quote asset on demand. What used to be sunk cost becomes a self-financing POL (Protocol-Owned-Liquidity) loop with 3 revenue streams. Projects can set asymmetric single-sided pools and LPs can stack swap fees and lending yield in a single position that can be used as collateral for hedges or carry trades. Strategies range from impermanent loss hedging to arbitrage spreads between funding and borrow costs.
We are yet to see the full potential of EulerSwap once it goes fully live in production. Similar to lending markets, AMMs tend to exhibit a power law with winner-takes-all dynamics, as more liquidity depth leads to low-slippage trading execution and increasing volume attracts more LPs. Nonetheless, the dominance of swap aggregators and EulerSwap’s effectiveness for POL (Protocol-Owned-Liquidity) management could play in Euler’s favor here. As a liquidity facility for credit and swapping, Euler is positioned to take the lion share of the new wave of structured products onchain, already hosting a large and growing base of long-tail assets, Pendle PTs, RWAs, and opening up the doors for new opportunities with exotic collateral. Features like flash‑loan and batching, subaccounts, oracle‑agnostic design, and permissionless market creation, make Euler stand out as the fabric for yield aggregation and vault creation. By decoupling collateral onboarding, risk parameters, and liquidation logic into discrete building blocks, Euler has future-proofed its stack demonstrating that even with all their primitives and code being open-source and available to draw inspiration from, they can rebuild after a multi-million hack and still have a competitive advantage at the edges of innovation.
$EUL Valuation & Flows
Euler’s revenue generation has been on a steep accelerating uptrend that has significantly decreased valuation multiples, from a P/F (FDV) of ~30x to the current ~5x as the protocol has tripled its annualized fees in the last 2 months. This strength is expected to continue as EulerSwap goes live in production. With the protocol generating more cash than ever before and compressed multiples, we are looking at an opportunity to buy a token that, unless you expect growth to stall, is now much cheaper than a couple of months ago. The market is currently paying less for each unit of cash flow just as those cash flows inflect upwards.
For lending protocols, active loans and capital efficiency is the name of the game. Raw metrics like passive TVL fall short at providing relevant context. In addition to Euler’s standout utilization ratio, the protocol also features a ~3.4x borrowed/FDV ratio, supporting substantially more capital in loans than its FDV represents. Only recently starting in July did we see a divergence where price rallied and the multiple tumbled. Notably, Euler features a slightly greater borrowed/FDV multiple than TVL/FDV (3.4x vs 3.1x) while it’s typically the opposite across the board (AAVE’s 6x TVL/FDV vs 4x borrowed/FDV; Morpho’s 2.7x TVL/FDV vs 1.4x borrowed/FDV; Fluid’s 2.8x TVL/FDV vs 2.3x borrowed/FDV; Maple’s 3.2x TVL/FDV vs 1.7x borrowed/FDV).
Token price has started reacting positively to the improvement in fundamentals, in tandem with Frontier’s launch and EulerSwap’s announcement. This results in a setup where momentum is taking the front seat as $EUL bounces back from relatively underpriced territory. $EUL is still the cheapest cash flow engine in the cohort and the discount still persists despite the most recent price rally. This valuation gap is still not closed, even if the opportunity to buy looked more attractive a while back. Even after a sharp rebound, $EUL remains in the single-digit P/F (FDV) zone.
Euler remains the cheapest on cash flow multiples, highlighting a valuation that still implies the heaviest discount to run-rate revenue while featuring the most composable and versatile base layer with 400+ vaults and the widest menu of credit-collateral combinations. At 5.4x P/F (FDV), Euler is 20% below Aave, three-times below Morpho, and seven-times below Maple.
In a timeframe of approximately 1 year, we see the following valuation scenarios potentially playing out as pertaining to EUL’s price. At a current 30-day annualized fee run rate of $72M, Euler has room to grow approximately 2x to $150M in our base case scenario as TVL follows the past 1-month CAGR of 107%. Under this view, the valuation multiple would also re-rate from a current P/F (FDV) of 5 to 10, resulting in a base case price return of 297%. This implies a risk/reward of 7x relative to our bear case, where we assume a multiple of 4x P/Fees on $50M revenue. In our bull case, which would be triggered by a broad flight to quality amid demand for blue chip lending asset exposure, we see Euler trading at 20x P/F (FDV), which would be in line with the historical bull market’s premium in AAVE’s multiples (averaged 28x in Q2 2021). Assuming nearly 3x revenue growth from current levels, this scenario results in a projected price return of 958%, with a 20:1 risk/reward profile to the bear case.
Risks & Invalidations
The historical correlation between price, fees, and TVL signals effectiveness on FeeFlow’s $EUL buyback cadence. Expanding to new chains has helped the protocol ride tailwinds and stay relevant with a first-mover advantage on newer and incentivized ecosystems such as Berachain, Sonic, Unichain, and most recently as a Telegram mini-app via TAC. As the codebase is deployed on more chains TVL is expected to rise, but signs of slowdown or drawdowns are worth monitoring as potential triggers to trim exposure. Divergences in correlation versus price help to understand how much of the price action is driven by fundamentals versus narrative.
Even though buyback bids have played a key role so far, it’s still important to not lose sight of potential rEUL overhangs as rewards finish vesting periods. This could become a more serious concern in the second half of the year, especially if and when the overall market led by $BTC loses bullish momentum. Similarly, the tendency is that borrowing activity soars during bull markets, but reverses in downtrends. That would decrease the utilization rate of Euler, which is currently one of the metrics where Euler shines versus competitors. Putting things into perspective relative to peers will shed light on whether downturns are caused by market-wide de-risk behavior. However, this ratio is expected to outperform even more as EulerSwap activity starts kicking in, making the difference versus competitors even larger. Still, tracking a borrowed/FDV ratio across the board is a must for monitoring a liquid $EUL position. $EUL is still not listed on major centralized exchanges and lacks a futures market, meaning that any demand can significantly move the order books in either direction.
Conclusion
Market cycles and narratives shift, but optionality endures. At its core, this flexibility is what lays the ground for an infinite surface for innovation that is permissionless by design and has all the ingredients to attract sticky liquidity and fuel for $EUL buybacks. The compounding power of choice is what makes Euler the preferred place for builders and curators to demonstrate what makes them stand out.
$EUL now trades at $382M FDV and $1.3B borrowed, putting the Borrowed / FDV ratio at 3.4x with a track record of consistently leading in utilization and currently recording above $70 million in annualized fees. Notably, the token is currently hovering all-time-high, making views on the aggregate market largely relevant. Buying strength no longer offers the asymmetry that you could find a couple of months back. At the same time, there are few credible alternatives to make bids in liquid markets expressing the view that a meta-protocol is indeed all that Ethereum DeFi was missing to succeed. That success involves RWAs, PTs, LSTs, LRTs, etc all living together under the same umbrella built by a team that has managed to avoid VC predatory traps, rise from the ashes, and now compete face-to-face against DeFi blue-chips with a clearly differentiated value proposition.
At the current multiples, $EUL trades like an orthodox lender despite offering opportunities that incumbents cannot replicate. Each new vault, Frontier-like complex, or EulerSwap pool magnifies fee flow and therefore increases $EUL demand. Catalysts include EulerSwap’s full production launch, more Frontier-style complexes, crosschain deployments, and Tier-1 CEX listings executed on more favorable terms now that liquid funds dominate the scene and supply is scarce.
Price discovery above $15 still leaves a valuation gap, and incremental upside comes from expected fee flow growth and specific catalysts that can push the speculative premium up even further. Holding a bullish view today denotes that $EUL is core DeFi infrastructure with a venture-style return profile, even at the current levels. Confidence is expected to compound as the protocol continues to convert every marginal dollar of TVL into fee streams that turn flow into $EUL buybacks, finally convincing allocators that $EUL is the EVM’s most versatile meta-protocol.
References
CoinGecko. Euler (EUL) Market Data.
CryptoRank. Euler Finance ICO Overview.
DeFiLlama. Euler Protocol Overview.
DeFiLlama. Lending Protocols Overview.
Euler Finance. Application Interface.
Euler Finance. Ethereum Vault Connector Whitepaper.
Euler Finance. EulerSwap Whitepaper.
Euler Finance. Euler Vault Kit Whitepaper.
Euler Finance. Fee Flow Whitepaper.
Euler Finance. GitHub Repositories.
Euler Finance. Official Website.
Euler Finance. Protocol Explorer.
Flower.money. Official X Account.
Jack Prior. Co-Founder of Euler Labs
Michael Bentley. Co-Founder and CEO of Euler Labs (X).
Objective Labs. Official X Account.
Disclosures
Alea Research has never had a commercial relationship with Euler and this report was not paid for or commissioned in any way.
Members of the Alea Research team, including those directly involved in the analysis above, may have positions in the tokens discussed.
This content is provided for educational purposes only and does not constitute financial or investment advice. You should do your own research and only invest what you can afford to lose. Alea Research is a research platform and not an investment or financial advisor.