Lido Proposes Exit Plan Tapping Borrower Collateral to Pay Lenders

The Proposed Mechanism

Lido's proposed exit plan would allow lenders to withdraw by tapping collateral from borrower positions, starting with accounts closest to liquidation. The mechanism would simultaneously reduce both the borrowed amount and the collateral available, effectively settling obligations through the collateral pool rather than requiring a separate repayment transaction. This approach differs from traditional lending withdrawals where borrowers repay debt first and lenders then receive funds.

Unresolved Questions

Multiple critical parameters remain unspecified in the current proposal. The eligibility criteria for healthy loan positions—those far from liquidation—have not been defined, leaving unclear whether all positions would be subject to collateral seizure or only distressed accounts. Similarly, the exact mechanism by which lenders would receive ETH or an equivalent asset has not been detailed, creating uncertainty about whether withdrawals would be direct or require conversion through intermediate steps.

Why It Matters

For Traders

If Lido Lend launches with this mechanism, borrowers risk collateral liquidation during lender exits; liquidation cascades could spike funding rates or trigger forced closures.