A permissionless vault-creation kit rather than one shared lending pool — anyone can spin up an isolated Euler V2 market, and that flexibility made it one of Monad's day-one lending venues.
Euler V2 splits lending into two pieces. The Euler Vault Kit lets anyone permissionlessly deploy an isolated, ERC-4626-based lending vault with its own collateral list, loan-to-value ratios, oracle and interest-rate model. The Ethereum Vault Connector then lets independently deployed vaults link together, so a user can use one vault's shares as collateral to borrow from another — enabling one owner address to run up to 256 virtual sub-accounts, each able to enable multiple collateral vaults against a single borrow vault. It's a meta-lending layer for building markets, not one shared pool everyone drops assets into. Liquidation runs as a reverse Dutch auction rather than a flat discount: the bonus scales continuously with how underwater a position is, only enough collateral is seized to cover the discounted debt, and V2 lets individual vault creators customize the auction mechanism further via hooks rather than being locked into one protocol-wide liquidation style.
Euler's original V1 was one shared pool with centrally governed risk tiers for every listed asset — a bad listing anywhere in the pool was everyone's problem. V1 also suffered a roughly $197M flash-loan exploit in March 2023, traced to a function called `donateToReserves()` that had been added to patch an earlier, smaller bug: it let a user donate collateral into reserves without a solvency check, and an attacker combined that with a flash loan to distort the exchange rate between deposit and debt tokens, then self-liquidated at a profit. The funds were fully recovered through direct negotiation with the attacker. V2 is a full rewrite, not a patch, and isolates risk by design: a bad vault only endangers the specific users who chose to interact with it. Critically, V2 doesn't just patch the donation vector — it removes it entirely, so reserves can only grow through normal interest accrual, with internal balance tracking that isolates a vault's exchange-rate math from external transfers or donations altogether.
Against Morpho Blue, its closest architectural cousin, both are permissionless isolated-market primitives with no protocol-level approval needed to launch a market. The real difference is flexibility versus immutability: Morpho Blue markets are immutable forever with no admin key, while Euler vaults can be deployed either governed — letting a curator retune parameters after launch — or ungoverned and permanently frozen, a choice Euler gives creators that Morpho doesn't. The Vault Connector's cross-vault collateralization is also something Morpho's fully-isolated one-collateral-one-loan design doesn't support at the base layer. Against Aave, the contrast is the same pooled-versus-isolated split that shaped the April 2026 rsETH exploit: both Euler and Morpho had third-party curated vaults with some exposure to the Stream Finance/xUSD collapse in November 2025, but losses were reportedly contained to those specific curated vaults rather than draining the whole protocol. Against Curvance, mainstream Euler vaults on major assets run considerably more conservative LTVs — roughly 84-87% at the tight end — next to Curvance's 97.5% ceiling; Euler's capital efficiency instead comes from cross-vault collateralization rather than pushing loan-to-value higher on a single asset.
Euler was live on Monad from mainnet launch day, November 24, 2025, alongside Morpho and Gearbox — worth noting that this is when Euler reached Monad, not when Euler V2 itself launched, which happened on Ethereum back in September 2024 after roughly a year of post-hack development and, per Euler's own count, 29-31 audit reports across a dozen firms plus a $1.25M public audit competition. The clearest publicly confirmed integration on Monad is Agora's AUSD stablecoin — Upshift's earnAUSD vault allocates deposits into Euler (plus Curvance, Neverland and Morpho) lending markets on Monad. Which other curators run which specific Monad vaults isn't fully disclosed publicly.
Because vault creation is permissionless, risk is vault-specific rather than protocol-wide — a careless or malicious deployer can list a thinly collateralized or bad-oracle vault, and the Vault Connector's composability means that risk can spread into anything linked to it. The oracle side carries the same fundamental risk as Morpho's permissionless oracle choice: each vault points at a router mapping asset pairs to oracle adapters, and nothing stops a vault creator from wiring in a thin or manipulable one. On Monad specifically it's often unclear from public information which entities curate which vaults, making it harder to vet a given market before depositing. Isolation limits blast radius, but doesn't remove it: the November 2025 Stream Finance/xUSD collapse still produced real bad debt in the specific Euler vaults that held exposure, even though the core Euler contracts themselves weren't breached.
Note: V2's code has been through nearly 30 audits and public bug-bounty competitions since the V1 exploit — but Monad's own vaults are newer and less battle-tested in practice than Euler's longer-running Ethereum markets.
V2 is a ground-up rewrite — the specific mechanism that caused the 2023 loss no longer exists in V2's code at all, and the rewrite went through nearly 30 audit reports plus a $1.25M public audit competition before launch. That said, isolated vaults were still exposed to bad debt during the November 2025 Stream Finance/xUSD collapse via third-party curator allocations — the core wasn't hacked, but permissionless vault creation let risk in through third-party curation.
A function called donateToReserves(), added to patch an earlier bug, let a user donate collateral without a solvency check; an attacker combined this with a flash loan to distort exchange rates and self-liquidate at a profit, draining roughly $197M. V2 removes the donate-to-reserves vector entirely and uses internal balance tracking immune to that class of attack.
Both are permissionless isolated primitives where a creator picks the collateral, oracle and interest-rate model with no protocol approval. The difference: Morpho markets are immutable forever with no admin key, while Euler vaults can be governed (retunable later) or ungoverned (permanently frozen) — the creator's choice. Euler's Vault Connector also lets one account use several vaults as collateral for a single borrow, which Morpho's fully-isolated design doesn't support.
Within a single vault, no — liquidation only seizes enough to cover the discounted debt, and any leftover stays in your account. The real exposure risk is indirect: depositing into a curated vault means your risk is whatever the curator allocated into, and the November 2025 Stream Finance episode showed curator-selected collateral can go to zero even when Euler's own code is sound.
Sources: Ethereum Vault Connector — Euler Docs, Euler Vault Kit — Euler Docs, Euler V2: The New Modular Age of DeFi, Liquidation — Euler Docs, Donation Attacks — Euler Docs, Introducing EulerSwap — Euler Blog, Euler launches V2 following hack — The Block
Last reviewed 2026-07-08. More Monad research.
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