We prove well-posedness for the 3-D compressible Euler equations with moving
physical vacuum boundary, with an equation of state given by the so-called gamma gas-law
for gamma > 1. The physical vacuum singularity requires the sound speed c to go to zero
as the square-root of the distance to the moving boundary, and thus creates a degenerate
and characteristic hyperbolic free-boundary system wherein the density vanishes on the
free-boundary, the uniform Kreiss--Lopatinskii condition is violated, and manifest
derivative loss ensues. Nevertheless, we are able to establish the existence of unique
solutions to this system on a short time-interval, which are smooth (in Sobolev spaces) all
the way to the moving boundary, and our estimates have no derivative loss with respect to
initial data. Our proof is founded on an approximation of the Euler equations by a
degenerate parabolic regularization obtained from a specific choice of a degenerate
artificial viscosity term, chosen to preserve as much of the geometric structure of the
Euler equations as possible. We first construct solutions to this degenerate parabolic
regularization using a new higher-order Hardy-type inequality; we then establish estimates
for solutions to this degenerate parabolic system which are independent of the artificial
viscosity parameter. Solutions to the compressible Euler equations are found in the limit
as the artificial viscosity tends to zero. Our regular solutions can be viewed as
degenerate viscosity solutions. Out methodology can be applied to many other systems of
degenerate and characteristic hyperbolic systems of conservation laws.