Swivel v3 Launches Euler and Leveraged Gauges: An Overview

Swivel v3, the decentralized finance (DeFi) protocol, has recently launched its Euler USDC markets with Euler gauges and governance. This integration allows EUL token holders to vote for supported assets and direct a proportional amount of future EUL incentives, resulting in a direct relationship between annual percentage yield (APY) and EUL incentives.

The approximate value of a yield token is determined by its projected future yield, which is influenced by several variables, including time, market APY, and APY volatility. To project future yield accurately, Swivel v3's liquidity providers (LPs) can adjust their orders to ensure their quotes accurately represent a current projection of future yield, accounting for changes in APY and preventing permanent "impermanent" loss.

Euler's gauges play a significant role in the integration by allowing EUL token holders to vote for supported assets and direct a quadratically proportional amount of future EUL incentives. These incentives reward borrowers for their activity and absorb their costs, leading to a direct relationship between APY and EUL incentives.

However, the direction of borrowing incentives is where things get interesting. Recent profitable gauging strategies have relied on deposits into niche markets like STG or VEGA, leaving speculators exposed to significant risks and opportunities largely limited to insiders.

With the launch of Swivel v3, EUL holders can now purchase yield tokens and increase their exposure to a given market before voting for its gauge. This feature enables EUL holders to gain significant leverage and increase profit from any gauge strategy.

The integration represents a much more interesting proposition, as it provides access to gauge and governance derivatives, enabling EUL holders to project, enforce, and speculate on Euler APYs and EUL gauges while actively participating in their direction.

With access to yield derivatives and the ability to speculate on future Euler yields, Euler can begin to serve as a central reserve for the lending stack, with EUL holders acting as a DeFi-native reserve board. Overall, the integration of Euler and leveraged gauges has exciting implications for the DeFi space, particularly for yield token pricing and governance.