Lido Lend plans to launch Fallback Exits, allowing borrowers to supplement withdrawals with collateral

Lido contributors proposed a lending protocol called Lido Lend, which will launch a withdrawal mechanism named Fallback Exits. When the market lacks sufficient liquidity of loan assets, lenders can utilize the collateral of borrowers to fulfill withdrawal requests, and the corresponding debt of the affected borrowers will be reduced. The protocol was launched on October 7 as a modified fork of Morpho Blue, built around isolated markets.

According to the proposal, the collateral of borrowers will be passively utilized in order of the highest position risk, meaning that positions closest to the liquidation loan-to-value ratio (LLTV) will be prioritized, while borrowers with very healthy positions are less likely to be affected. Taking the ETH/wstETH market as an example, lenders provide ETH, and borrowers stake wstETH to borrow ETH; if exiting through collateral, lenders will first be exposed to the staked tokens before receiving ETH. The proposal did not specify the eligibility threshold for healthy loans or the path for lenders to obtain ETH.

Contributor Izzy stated in a post on October 16 that technical specifications and market parameters will be announced within the next two weeks, and the governance process and public audit must be completed before the mainnet launch. Details such as settlement valuation, debt offset formulas, fees, and limits have yet to be determined.