Democratizing EUL distribution
Starting today on Euler, users can stake their EUL and redirect EUL distribution to their favorite markets. All of that with just a few clicks!
The Euler community has been emphasizing for months the vision of efficient EUL distribution accessible to everyone, not only professionals. A gas-efficient Mint functionality was developed to allow every user to simply set up the desired position within a single transaction and without the need for recursive borrowing. Such an approach is more democratic, more likely to decentralise, and more likely to create better efficiency for lenders if the market for EUL distribution is free and fair.
With the launch of Euler protocol’s governance token — EUL — it’s time for the next step. After 6 distribution epochs, the community now has the power to decide where the EUL distribution will flow. Users can vote for a market to receive EUL by staking their EUL tokens to affect the distribution of EUL in the subsequent epoch. Here is how the process works in detail.
EUL tokens are issued to users of the protocol who borrow assets, according to a time-weighted record of how long they retain those debts. The goal of this is to increase borrowing utilization of the pools, including for longer-tail assets. This should have the effect of increasing interest rates for depositors in the pool, which allow passive investors such as yield aggregators to indirectly benefit from EUL distribution without having to participate themselves.
Only a subset of markets will receive EUL tokens. This subset is determined by a staking system where participants allocate EUL tokens to the markets they would like to direct EUL distribution. Tokens are distributed in roughly 2 weeks intervals called epochs. In each epoch, the top N markets will be selected to earn EUL tokens during the following epoch.
The proportion of the total distribution for a given epoch issued for each market is based on the quadratic voting method which corresponds to the square root of the time-weighted number of tokens staked on that market. Both the total EUL distributed and the N parameter that controls the number of tokens is controlled by Euler governance.
To understand it better, let’s use an example. At block height of 15,030,001 Epoch 7 started that will last for 100,000 blocks, until the block height of 15,130,000. A total of 43,231 EUL will be distributed to 10 markets:
At the same time, voting for Epoch 8 distribution began. Until the block height of 15,130,000, EUL holders can vote by allocating their EUL tokens to selected markets. In Epoch 8, a total of 44,800 EUL will be distributed, and each market will receive the amount proportional to the square root of the time-weighted number of EUL staked on that market. It means that the longer and the more EUL is staked for a given market, the greater share of the total distribution given market will get in the subsequent epoch.
However, square rooting means there are diminishing returns to voting for an already popular market. I.e. that means if everyone piles in on USDC, eventually new votes will have little effect, allowing smaller assets to gain more of a share. It’s also an important fact that there is no lock-up period for staked EUL tokens. They can be unstaked anytime.
How to vote
To vote, go to https://app.euler.finance/ and select Gauge at the top bar. You can find a high-level description of the Gauge UI in the article Euler User Guide: Getting Started. At this point, the user must have some EUL tokens in their wallet they wish to use for voting. The EUL balance will be shown at the top of the markets’ table as well as the amount of currently staked EUL (No. of votes). Then, users can start allocating their EUL to selected markets by inputting values into the most right column of the markets table or by using the +/- buttons.
Inputting values simulates the view of the table as if the tokens were already staked. The simulation feature lets the user easily assess the impact of their action. They can see Projected Distribution and Voting Rank changing in real-time. When a user is happy with the outcome, they can submit a transaction by clicking on the Update votes button. The approval or signing permit is necessary if not made previously; an appropriate button should appear in place of the Update votes button if necessary.
Want to stake 100 EUL more on WETH, unstake 50 EUL from DAI and stake 80 EUL on USDC?
Not a problem, it can be done easily! The ability to make all changes within one transaction has become a flagship feature of Euler. It is not different for the Gauge UI. Users can add and lessen the amount of EUL staked for all the markets using just one transaction.
Hopefully, this guide helped you better understand the mechanics behind EUL distribution. If you have any questions, join the community Discord and feel free to ask. Please make sure to browse other guides in the main collection as well.
Euler is a capital-efficient permissionless lending protocol that helps users to earn interest on their crypto assets or hedge against volatile markets without the need for a trusted third-party. Euler features a number of innovations not seen before in DeFi, including permissionless lending markets, reactive interest rates, protected collateral, MEV-resistant liquidations, multi-collateral stability pools, sub-accounts, risk-adjusted loans, and much more. For more information, visit euler.finance.
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