Lido has shared new details about Fallback Exits, a mechanism planned for its in-development lending product, Lido Lend. The design is intended to give lenders an extra way out when liquidity in the borrowed asset is insufficient. In those cases, lender withdrawal requests can be met with a borrower’s collateral instead of the borrowed asset itself.
According to Lido, Lido Lend is built on a modified version of Morpho Blue and will use isolated markets made up only of related assets. Examples cited by the project include wETH and wstETH, as well as dollar-denominated assets and Treasury-backed real-world assets. Within that setup, lenders may exit fully or partially using borrower collateral.
Lido also described how the mechanism would be applied when triggered. Borrowers closest to the liquidation loan-to-value threshold, or LLTV, would be affected first, and their outstanding debt would be reduced accordingly. The project said detailed technical specifications and market parameters will be released within the next two weeks. Lido Lend is slated to launch on mainnet after completing the DAO governance process.
Lido has introduced the Fallback Exits mechanism for Lido Lend, the lending product it is still developing.
According to Lido, the mechanism is designed for cases where liquidity in the borrowed asset is insufficient. In that situation, a lender’s withdrawal request can be supplemented with borrower collateral, giving lenders an additional exit route.
How Lido Lend markets are structured
Lido Lend is built on a modified version of Morpho Blue and will only use isolated markets composed of related assets. Lido gave examples including wETH and wstETH, as well as dollar assets and Treasury RWA. In those markets, lenders can exit fully or partially with borrower collateral.
What happens when Fallback Exits is triggered
When the mechanism is activated, borrowers closest to the liquidation LTV, or LLTV, are affected first. Their outstanding debt is then reduced accordingly.
Next steps
Lido said detailed technical specifications and market parameters will be published within the next two weeks. Lido Lend will go live on mainnet after the DAO governance process is completed.
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