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On April 18, 2025, market maker Wintermute announced that its investment institution Wintermute Ventures has invested in the DeFi lending agreement Euler Finance.
Wintermute Ventures published the same dayEuler’s Thesis on Investment, bitchain vision AIMan compiles, the following is the full text:
In this investment paper, Wintermute Ventures believes that Euler Finance v2 has cracked the password and become a full DeFi liquidity layer, which is also the reason why Wintermute Ventures announced its investment in Euler.
status quo
The current status of the on-chain money market can be classified through three major architectural design frameworks: monolithic, isolated and modular.
Monopoly lending agreements limit lending by restricting asset selection, strict loan-to-value ratio (LTV) requirements, and high liquidation fines.Monopoly lending agreements help improve capital efficiency by pooling collateral for different purposes and allowing re-collateralization.However, they allow the addition of new collateral types only if economic conditions are limited, and are usually only possible through governance measures.
Isolated lending markets provide greater flexibility, but at the same time disperses liquidity and hinders remortgage, thus reducing capital efficiency.In addition, traders often have to browse multiple protocols, governance systems and interfaces, incurring additional fees.Isolated lending agreements like the Compound Finance v3 or Morpho Blue schemes allow for more flexibility in collateral use, but also disperses collateral and hinders recollateralization, thus reducing funding efficiency.These inefficiency factors prompt traders to turn to centralized finance (CeFi) and perpetual contracts rather than decentralized spot markets, reducing the returns of DeFi lenders and reducing the overall liquidity and efficiency of DeFi.
Euler v2 is a modular lending platform designed to solve these problems and become the main liquidity layer of DeFi.
Euler’s core concept
Briefly, Euler v2 is a highly modular DeFi money market infrastructure.It streamlines the DeFi lending market to core components and modularizes it, allowing the creation of nearly any type of DeFi money market to meet a variety of risk preferences, from conservative lenders seeking quality collateral to high-yield investors willing to participate in high-risk markets.We believe it is this modular framework that makes Euler v2 an attractive foundation for the money market, as it is this enhanced flexibility that enables it to attract all kinds of borrowers and asset managers with different risk preferences.Unlike traditional monolithic lending protocols that impose strict collateral requirements, Euler v2 introduces a highly flexible ERC-4626 vault-based system that significantly improves funding efficiency and liquidity utilization.Euler v2 is based on two core concepts: Ethereum Vault Connector (EVC) and Euler Vault Kit (EVK).EVK supports permissionless vault deployments that can be interconnected through EVC to identify existing vault deposits as collateral.The creator defines all risk/reward parameters and chooses whether to maintain governance for active management or permanently revoke governance controls, allowing lenders to manage risks themselves.
Source: Euler
Flywheel effect
Euler vaults can identify deposits in other vaults as collateral, thus solving the guidance puzzle and enhancing liquidity.In this context, we are particularly excited that when new vaults accept deposits from existing vaults as collateral, existing vaults will gain additional utility, while new vaults can leverage existing TVLs, thereby accelerating adoption.This creates a flywheel effect: more use cases improve utility, thus attracting more deposits.In turn, the increase in deposits will lead to a wider adoption of vaults as collateral, further enhancing TVL growth and improving capital efficiency across the ecosystem.Since its introduction, Euler has shown that this theoretical approach can be translated well into actual data: the average utilization rate of all vaults is currently around 47%, and Euler is much more capital efficient than other market participants.
Source: Euler
Liquidation mechanism
Another compelling feature of Euler v2 is its liquidation mechanism, which is one of the most efficient (if not the most efficient) in DeFi and allows vault creators to customize the liquidation process.By default, it adopts Euler v1’s reverse Dutch auction mechanism, which minimizes liquidation costs and protects borrowers and lenders.The reverse Dutch auction mechanism allows liquidation to occur usually near the marginal cost of execution.Therefore, small positions often require relatively high liquidation fees, while large positions can enjoy a significantly reduced fee proportional to their size.This is because liquidation usually has a fixed cost, which will decrease accordingly as the position size increases.The mechanism ensures that liquidators receive fair compensation without incurring unnecessary MEV or punishing borrowers for excessive fees, which often leads to.Additionally, Euler does not charge additional liquidation fees set by many other lending agreements for additional income.
On the front end, Euler offers a comprehensive set of product features tailored for passive users and advanced traders.In addition to the standard lending protocol functions, its outstanding features include:
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Multiplier function: Promote leveraged trading and return cycle.Users can create leveraged positions by providing collateral, borrowing, swaping and resupply.
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Transaction batch processing: Perform multiple operations in a single transaction via EVC.Built-in delay status checks allow for flexibility in operational sorting, while simulation mode allows previewing results before execution to reduce risk.
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Portfolio Management: Helps users monitor and manage their positions.Health scores indicate the extent to which they are about to be liquidated, while quick operations allow users to replenish collateral or repay debts.Advanced analytics features provide insights to optimize positions and maximize returns.
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Euler Vault Explorer: Euler simulates the complexity of real-world credit markets, but provides a transparent way to view risks.You can analyze vault risks through Euler’s Vault Explorer or other third-party dashboards.
Growth momentum
Euler v2 has gained significant attention since its launch, with its TVL soaring more than 250 times, making it the fastest-growing lending protocol in the DeFi sector right now.Monthly active users grew from less than 1,000 to 10,000 in April 2025, steadily setting a record high.In addition, active loans have increased from $88 million to $510 million so far this year, an increase of about 480%.It is worth noting that this growth is achieved with only about $2 million in agreement incentives deployed.To us, these indicators are of great significance.In situations where liquidity mining activities often only attract short-term profit-oriented capital, resulting in little significance in paying attention to data, Euler has proven that with minimal financial incentives, real organic growth can be achieved and real users—provided that the product experience is as truly excellent as Euler.
Euler’s market cap has remained relatively stable since its launch, while daily expenses and TVL have increased rapidly.
Source: DefiLlama
Source: DefiLlama
Multi-chain expansion
There are many factors driving Euler’s recent TVL growth: Euler focuses on multi-chain scaling, has been rapidly deployed on emerging EVM chains over the past six months, attracting a large number of TVLs and establishing its dominance as a leading money market on emerging networks.In 2025, Euler v2 expanded to rapidly growing blockchains such as Base, Sonic, Berachain, Bob, and BNBCHAIN gained substantial attention and steadily announced new chain expansions such as Optimism.
Euler has been successful in its blockchain expansion so far, with smaller blockchains currently accounting for about 27% of TVL total.
Source: DefiLlama
EulerSwap
Finally, what is crucial to us at Wintermute Ventures is the vision of Euler’s upcoming EulerSwap product, an automated market maker AMM that integrates directly with its money market, aims to address liquidity fragmentation and boost revenue.Not only is this swap product uniquely designed and efficiently, but by integrating the Swap market, Euler has also built itself into a one-stop service platform for DeFi liquidity, making the agreement a complete ecosystem.We are looking forward to this vision and look forward to applying our expertise to support it.
Summarize
Wintermute Ventures is very pleased to invest in one of the most promising protocols we consider to be in the DeFi space.Euler has become the fastest growing lending protocol since the release of the v2 version, with its fully diluted valuation mostly stable.Its modular architecture can serve as a DeFi money market infrastructure, meeting a variety of risk preferences from conservative institutional strategies to experimental retail products.This marks the beginning of Euler’s infinite possibilities and also marks an exciting journey for Wintermute Ventures as Euler’s partner and investor.
