Liquidation

Notional Exponent leveraged yield strategies can expose users to liquidation risk.

Liquidation risk for Notional Exponent users is determined by the lending protocol that they are borrowing from. If your leveraged position is borrowing from Morpho, your Max LTV is set by the Morpho market.

Notional Exponent does not make any changes to your liquidation terms. All liquidations run through the lending protocol where the position is holding its collateral.

Forced withdrawal

For vaults that have enabled smart withdrawal, liquidators can choose to force withdraw unhealthy accounts instead of directly liquidating them.

Forced withdrawal allows liquidators to initiate the smart withdrawal process on an unhealthy account. Forced withdrawal imposes no fees or penalties on the targeted account.

Liquidators can then directly liquidate an account that has been withdrawn at any time after forced withdrawal was initiated as long as the account remains unhealthy.

NOTE - forced withdrawal can only be done on unhealthy accounts that are eligible for liquidation.

Why forced withdrawal?

Some vaults that hold illiquid yield tokens can't be liquidated with flash loans. For vaults like these, liquidators may prefer to force unhealthy accounts to withdraw their tokens first before liquidating them.

Once an account's forced withdrawal has finalized, liquidators can seize the withdrawn tokens that are liquid and use them to repay the account's debt with a flash loan.