Lido’s proposed exits would pay lenders with borrower collateral
Lido contributors are developing a Morpho Blue-based lending protocol with a proposed “Fallback Exits” feature. If lenders cannot withdraw enough ETH, they could receive borrowers’ collateral while the corresponding debt is reduced. The feature may affect even healthy loans, particularly those closest to liquidation, but eligibility rules are not final. Key open questions include collateral valuation, debt offsets, fees, limits and whether lenders receive tokens or claims. Unlike Morpho’s existing withdrawal and liquidation paths, this design would let lender withdrawals reduce borrower positions without requiring loans to be unhealthy. Any collateral received may not convert immediately or at its accounting value into ETH; wstETH may need to be sold or redeemed through Lido’s withdrawal queue, which takes time and carries risks. Technical specifications, governance and audits are still pending before mainnet launch.
