Telos Consilium just ignited a new era in DeFi with the launch of curated Euler Earn vaults on Mainnet—empowering users to seamlessly channel their assets into the best performing, risk-optimized USDC and WETH markets available.

As vetted algorithmic risk curators on Euler Earn, we're elevating the landscape with cutting-edge allocation frameworks, by offering sophisticated curation strategies informed by our extensive background in DeFi protocols, stablecoins research, and yield optimization tools like IRMaster and NoetherBot. 

Today, we explore our Euler Earn risk curation methodology and how we approach essential elements including strategy selection, portfolio allocation, risk-based constraints, and continuous optimization.

Vault Architecture & Philosophy

Our Euler Earn vaults are built on three fundamental pillars: non-custodial, risk-adjusted APY targeting, and strategic diversification.

Supply Asset Foundation: Each vault focuses on a specific supply asset - starting with USDC and WETH on mainnet, our inaugural vaults, with plans to expand across all major assets that provide compelling opportunities for our users. To access TelosC-curated vaults, suppliers deposit their chosen asset, receiving vault shares that automatically accrue value as our strategies generate returns.

Risk-Adjusted APY: Rather than chasing maximum yields at any cost, we prioritize sustainable, risk-adjusted returns. Our APY is determined by the underlying strategies we select and how we allocate across them, always considering the risk profile each strategy introduces to the overall portfolio. APYs fluctuate dynamically based on market conditions, utilization rates, and our strategic rebalancing decisions.

Strategic Diversification: Our vaults allocate across a carefully curated selection of yield strategies on Euler. Each strategy is evaluated across multiple dimensions: underlying collateral quality, loan-to-value ratios, market liquidity, and borrowing costs. This diversification allows us to optimize for risk-adjusted yield while maintaining portfolio resilience.

Strategy Selection Framework

Strategy selection is our most impactful lever for defining vault risk profiles and yield potential. Our methodology incorporates sophisticated analysis that models market scenarios and protocol interactions within the broader DeFi ecosystem.

Drawing from our research expertise in stablecoins pricing, interest rate mechanisms, and DeFi protocol design, we've developed comprehensive models that incorporate detailed liquidity analysis, volatility projections, and network congestion scenarios based on historical data and forward-looking simulations.

When evaluating strategies for inclusion, we assess three primary dimensions that impact both risk and yield:

Strategy Addition: When considering new strategies, we analyze how the addition affects overall vault APY, risk concentration, and correlation with existing positions. Our models project the impact across various market scenarios to ensure additions genuinely improve risk-adjusted returns.

Allocation Optimization: Euler Earn continuously reviews and adjusts allocations among approved strategies to maintain optimal risk-adjusted positioning. This includes both increasing exposure to outperforming strategies and reducing exposure when risk metrics deteriorate.

Capacity Management: We implement strategic caps to limit vault exposure to any single strategy or protocol. These caps represent maximum allocation thresholds based on liquidity depth, protocol maturity, and correlation analysis.

Our allocation decisions consider multiple risk factors simultaneously:

• Liquidity Risk: DEX liquidity depth and slippage analysis for potential liquidation scenarios

• Protocol Risk: Smart contract maturity, audit history, and governance structure

• Market Risk: Volatility patterns, correlation analysis, and tail risk assessment

• Counterparty Risk: Borrower concentration and collateral quality evaluation

• Operational Risk: Oracle reliability, liquidation bot efficiency, and network congestion impact

These comprehensive risk models allow us to project allocation impacts with high confidence and respond rapidly to changing market conditions.

Dynamic Allocation Management

Effective curation requires continuous assessment and strategic adjustment as market conditions evolve. Risk factors can shift rapidly with utilization changes, new market entrants, or broader economic developments.

We categorize our strategic adjustments into two primary modes:

Risk Management: This involves continuous monitoring to ensure sufficient liquidity across protocols and DEXs to support potential liquidations without causing significant market disruption. We maintain real-time dashboards tracking key risk metrics and have automated alerts for threshold breaches. This process is crucial for maintaining vault stability and protecting depositor capital.

Yield Optimization: Euler Earn actively analyzes and reallocates assets among strategies to maximize risk-adjusted yield. This approach ensures we capture emerging opportunities while maintaining our disciplined risk framework.

Our yield optimization process includes:

• Cross-Strategy Analysis: We continuously assess yields across different strategies, considering not just current rates but the shape of utilization curves and projected trajectory changes

• Utilization Management: We monitor utilization rates across strategies to avoid over-concentration and ensure optimal risk-adjusted positioning

• Adaptive Rebalancing: Yield opportunities follow predictable patterns based on market cycles and utilization dynamics. By understanding these patterns, we can proactively reallocate to optimize vault performance

This dynamic approach allows us to implement regular optimization while maintaining comprehensive risk monitoring, ensuring we capture opportunities without compromising the vault's stability and security.

TelosC's Risk-First Approach

Our curation strategy is fundamentally defined by our commitment to understanding and managing the risks inherent in DeFi yield strategies. Drawing from our extensive research background in stablecoins as collateral and interest rate mechanisms through projects like IRMaster, we bring a unique perspective to risk assessment and management.

This approach is built on several key foundations:

Research-Informed Analysis: Our previous work analyzing stablecoins as collateral and developing interest rate management tools provides deep insights into protocol mechanics, liquidation dynamics, and yield sustainability. This research background allows us to identify risks and opportunities that purely operational teams might miss.

Multi-Dimensional Risk Assessment: We employ comprehensive analysis that includes frequent data validation and advanced scenario modeling to anticipate and mitigate potential risks. We monitor key factors such as DEX liquidity depth, volatility patterns, slippage analysis, and utilization management across all strategies.

Transparent Operations: We believe in providing clear visibility into our allocation decisions, risk metrics, and performance attribution. This transparency allows depositors to understand exactly how their capital is being managed and what risks they're accepting.

Sustainable Yield Focus: Rather than maximizing short-term returns, we optimize for sustainable, risk-adjusted yield that can be maintained across market cycles. This long-term perspective aligns with our goal of building lasting value for depositors.

Our process enables us to implement sophisticated optimization strategies while maintaining real-time risk monitoring, ensuring we can navigate market complexities confidently while balancing yield pursuit with vault integrity.

Scaling Our Curation Strategy

As we expand beyond our initial vaults, we're positioned to bring our risk-first methodology to a broader range of assets and opportunities. Our roadmap includes launching vaults across all major assets that provide compelling risk-adjusted opportunities - from established assets like USDT to emerging opportunities in the tokenized asset space.

We're also preparing for multi-chain expansion, bringing our curation expertise to Ethereum mainnet and other major DeFi ecosystems where Euler and similar protocols operate. This expansion will allow us to capture the best yield opportunities regardless of where they emerge, while maintaining our disciplined risk approach.

Our vision extends beyond individual vaults to building a comprehensive ecosystem of managed DeFi strategies. As new opportunities emerge across the DeFi landscape, we remain committed to collaborating closely with protocol teams and other ecosystem participants to expand access to sophisticated, risk-managed yield strategies.

The future of DeFi belongs to teams that can combine deep technical expertise with rigorous risk management and transparent operations. At TelosC, we're building toward this future - one carefully curated vault at a time.

TelosC is a Switzerland-based DeFi research lab and asset management firm specializing in risk analysis, protocol research, and yield optimization. Learn more about our services and latest research at telosc.com

Legal Disclaimer

This article is provided by Telos Consilium SA (“TelosC”), a company incorporated in Switzerland, for informational and educational purposes only.

Nothing contained herein constitutes, or should be construed as:

• an offer to sell, a solicitation to purchase, or a recommendation regarding any financial instruments, digital assets, or services;

• investment, legal, tax, accounting, or other professional advice;

• a prospectus or key information document within the meaning of Swiss financial market laws, including the Financial Services Act (FinSA).

Participation in DeFi protocols, yield optimization strategies, or any related activities described in this article is undertaken at your own risk and discretion. TelosC does not provide personalized investment advice, and nothing in this article should be construed as an offer, solicitation, or invitation to buy, sell, or hold any securities, cryptocurrencies, digital assets, or financial instruments in any jurisdiction.

Participation in protocols such as Euler Earn involves significant risks, including but not limited to smart contract vulnerabilities, protocol insolvency, market volatility, liquidity risk, operational failures, and regulatory changes. Past performance or modelled returns are not indicative of future results. Users may lose part or all of their invested assets.

All strategies, frameworks, and methodologies described are research-based and provided “as is,” without any representation or warranty, express or implied, of completeness, accuracy, or fitness for a particular purpose. TelosC does not custody client funds and does not operate as a bank, securities dealer, collective investment scheme, asset manager of collective investment schemes, or financial intermediary under Swiss law. TelosC disclaims any liability for losses, damages, or consequences arising from reliance on this article or participation in described strategies.

Any use of the vaults or strategies discussed is undertaken at the sole risk of the participant. Prospective users should conduct their own due diligence, seek independent professional advice where appropriate, and ensure compliance with all applicable laws and regulations in their jurisdiction.

By accessing or using the information in this publication, the reader acknowledges and agrees that TelosC, its directors, employees, or affiliates shall not be liable for any direct, indirect, incidental, or consequential loss or damage arising from the use of, or reliance on, this document or the protocols referenced herein.