Liquidation unwind

Liquidation unwind is the policy for reducing a looped position under stress. It is not a claim that Lyrasing has a liquidation engine. The page defines the review vocabulary a future market would need before recursive LRT positions are permitted.

Unwind posture matters because a loop is not one collateral sale. It can be a sequence of debt repayment, collateral release, secondary sale, primary redemption, claim-object handling, and repeated account-health checks.

Route selection

Route	When it might be reviewed	Stress question
Secondary-market sale	The token or wrapper has observable depth and executable venues.	Does venue depth survive when several loop turns need to exit?
Primary redemption	The backing protocol offers a redemption, withdrawal, or claim path.	Is the path fast enough, and does collateral remain slashable while waiting?
Buffered or inventory-based exit	A protocol or market participant provides faster liquidity from inventory.	What happens when the buffer is exhausted or rate-limited?
Claim-object settlement	The exit produces an NFT, receipt, queued withdrawal, or accounting claim before final assets arrive.	Can the claim be valued, transferred, held, or reconciled without overstating recovery?
Hybrid route	Some exposure is sold while another part waits for primary settlement.	Which leg gets priority, and how is residual risk measured?

The conservative posture is route diversity without route double-counting. A single liquidity source should not be counted as both deep secondary exit and reliable deleveraging backstop unless the stress case proves it.

Timing windows

Unwind should account for timing windows that can affect slashability or finality:

Window	Unwind implication
Queue or epoch	A withdrawal request can be delayed before final claim.
Safety delay	Allocations, deallocations, withdrawals, or slash effects can remain relevant after a user action.
Veto or review period	A slash request can be unresolved while account health and price already react.
Settlement or burner routing	Penalized collateral can have a delayed or separate accounting path.
Oracle update cadence	Account health can lag a reference-value change or claim-state change.

If the unwind path is slower than the risk realization path, parameter posture should compress. This is especially important for looped positions because each turn can require another release or repayment step before the account is safe.

Claim object handling

Some exits can create an intermediate claim object instead of immediate collateral recovery. A future risk record should define:

whether the claim object is transferable;
what unit it represents;
whether it remains exposed to slashing, veto, or settlement adjustment;
when it becomes final;
whether it can be sold without circular liquidity assumptions;
how it is accounted for in borrower health and supplier recovery.

Until those rules exist, claim objects should not be treated as cash-like liquidation proceeds. They may be part of recovery, but not immediate depth.

Why unwind order matters

Looped positions can fail because the order of operations is wrong even when each route is individually plausible.

Ordering issue	Risk
Sell before redeeming	Secondary depth can be exhausted and push price lower before primary value is tested.
Redeem before selling	Queue or epoch timing can leave debt outstanding while collateral is locked.
Repay too little first	Account health can remain fragile and require repeated liquidation attempts.
Release collateral too early	Remaining debt can become undercollateralized if reference price changes.
Count insurance before settlement	Supplier recovery can be overstated while capacity is still pending or disputed.

Under stress, the market needs a deterministic unwind posture: which route is preferred, which route is fallback, what gets reserved, what gets valued at a discount, and what remains unresolved.

No-engine boundary

This page does not introduce contracts, bots, auctions, keepers, route integrations, execution code, or primary-redemption adapters. It defines the liquidation unwind questions that should feed Parameter posture and Loop policy.