Security was treated as a core requirement throughout the build of Euler V2.

The vision for transitioning Euler into a modular protocol dates back to 2022. Since then, multiple code designs were explored as proof of concepts before work began on the final V2 implementation.

Euler V2 has undergone a multi-layered security process. Roughly $4 million was allocated by Euler DAO to security work, covering dedicated security leadership, early researcher engagement, fuzz testing, formal verification, internal review, external audits, public audit competitions, and live Capture the Flag programs.

At the time of writing, Euler protocol code and related modules have undergone over 60 security reviews by more than 16 firms.

This article focuses on the key smart contract security processes behind Euler V2. Smart contract security is only one part of the broader security picture for Euler.

Reinforcing Security Through Modularity

A primary goal of Euler V2’s modular design was to make the protocol easier to specify, test, analyze, audit, and monitor.

Euler V2 separates the lending system into focused modules. Each module is designed to do a small number of things in a well-specified way. Core modules include:

• Ethereum Vault Connector (EVC)
• Euler Vault Kit (EVK)
• Euler Price Oracle (EPO)

The audit process detailed later in this article highlights one of the benefits of Euler V2’s modular design: internal and external teams could test modules both in isolation and in composition with other modules.

Modularity does not remove protocol risk. It makes the system easier to reason about.

Security Processes

It is common for protocols to complete development before bringing in auditors. Euler V2 brought security review into the design and implementation process earlier.

With the goal of implementing a “Swiss Cheese” model of security, Euler DAO allocated roughly $4 million to security work. This allowed Euler Labs and Euler DAO to bring in experienced protocol engineers and security researchers during the design and proof-of-concept stages of Euler V2.

To oversee security processes and operations, Erik Arfvidson was hired by Euler Labs as Head of Security. Erik has more than 16 years of experience across web2 and web3 security. In addition to managing day-to-day security operations and working with external security partners, Erik has worked to align Euler’s development practices with ISO 27001-style controls.

Early engagements included:

• Certora, which brought two security engineers in-house for six months to help guide development and formally verify assumptions about code behavior.
• Alberto Cuesta Cañada, ERC-4626 pioneer and developer of Yield Protocol, who challenged the structure behind V2 and helped investigate lending-specific attack surfaces. This work contributed to Euler’s article on exchange-rate manipulation in lending protocols.
• Cmichel and StErMi, security engineers from Spearbit with lending protocol experience, who came in-house to challenge protocol architecture, carry out threat modeling, and conduct line-by-line review of key parts of the early codebase.

Testing, Fuzz Testing and Formal Verification

As the protocol began to take shape, a comprehensive suite of unit and invariant tests was developed alongside Euler V2. Enigma Dark’s Victor Martinez was hired to build a dedicated fuzz testing suite using Medusa and Echidna, while Certora helped build a formal verification testing suite.

These two methodologies are important complementary tools for testing protocol invariants and finding edge cases in which, despite best efforts, unexpected things happen in a protocol’s code. Fuzz testing bombards a protocol’s code with randomness to find when key assumptions might be broken. Formal verification turns the codebase into a system of equations and helps formally prove that certain invariants cannot be broken. Fuzz testing is generally more flexible to apply but cannot prove things, while formal verification is harder to use in all cases but provides formal proofs when it works.

One of the most important invariants a lending protocol needs to test is that a user’s health should not change unless their balances or the prices of the assets they hold do. Breaking this invariant, or proving it could not be broken, was set as a key challenge for both invariant testing suites.

The Holy Grail of formal verification for Euler V2 was proving this invariant across the relevant system model. Certora’s team, with significant contributions from Andrew Ferraiuolo, delivered that proof.

Internal and External Audits

Once each module of Euler V2 was completed, it was reviewed both internally by Euler Labs and externally by independent security firms.

Euler Labs has multiple smart contract teams, allowing one team to review another team’s code before external audit work begins. External audit firms then reviewed the codebase through separate engagements.

At the time of writing, Euler protocol code and related modules have undergone over 60 security reviews by more than 16 firms.

The audit process highlights a key benefit of Euler V2’s modular design. Each module is designed around a defined role, which makes assumptions easier to document and review. Independent teams can test modules in isolation, then test how those modules behave together.

Using multiple firms brought different areas of expertise to the review process, including liquidation mechanics, vault accounting, oracle behavior, collateral recognition, account health checks, and Dutch-auction-style liquidations.

Code Audit Competition

Code audit competitions have become an important part of the security review process. They complement traditional audit engagements by opening the codebase to a broader set of researchers, tools, and review styles.

Cantina was engaged to run a $1.25 million code audit competition for the Euler V2 codebase.

More than 600 participants reviewed the scoped contracts and searched for post-audit issues. No high or medium severity issues were found in the post-audit code during the competition. Low severity and informational findings were still rewarded, with $200,000 allocated to researchers for their contributions.

Security competitions are not a replacement for audits. They are another review layer.

Live Capture The Flag

Audits and competitions are important, but they still operate within defined review environments. Euler also tested deployed contracts through live Capture the Flag programs.

In collaboration with Hats Finance, Euler launched a Capture the Flag with approximately $3.5 million in live funds. Funds were deposited into Euler’s USDC/ETH and WETH/USDC CTF markets, and participants were invited to attempt to retrieve those funds under the competition rules.

After 13 days, no funds were compromised.

EulerSwap later went through a separate $500,000 live mainnet Capture the Flag using real USDC and USDT liquidity. No funds were compromised in that competition either.

Live CTFs test a different surface from standard audits. They expose deployed contracts and real funds to adversarial review under defined conditions.

Conclusion

Euler V2 was reviewed through a multi-layered security process: modular design, early researcher engagement, line-by-line review, unit tests, invariant tests, fuzz testing, formal verification, internal audits, external audits, public security competitions, live CTFs, monitoring, and bug bounty programs.

Security does not stop with audits, and it is not limited to smart contracts.

This article does not cover every security process used across Euler, including monitoring, application security, penetration testing, incident response planning, operational controls, and ongoing bug bounty work.

No security process removes protocol risk. DeFi systems can still face smart contract risk, oracle risk, liquidity risk, governance risk, integration risk, and operational risk.

Euler’s approach is to make the system more explicit, more reviewable, and easier to reason about.

When it comes to security, there is always more to do.