Leverage on Monarch

Monarch supports leveraged Morpho positions through a single action flow when a supported route is available.

Today there are two route types:

1. Swap route — for general collateral / loan token pairs
2. ERC4626 route — for vault-share collateral where the vault underlying asset matches the market loan asset

The frontend also supports the reverse unwind flow with deleverage.

How route selection works

When leverage is opened, Monarch checks route availability for the market:

• if the collateral token is an ERC4626 vault share token and its underlying asset equals the market loan token, Monarch can use the deterministic ERC4626 route
• otherwise, Monarch uses the swap-backed route when Bundler3 routing is available on that chain

This is why route support is determined by the exact market pair and chain configuration.

Swap-backed leverage

For general collateral / loan pairs, Monarch uses a bundled swap-backed route.

At a high level, the flow is:

• move your starting capital into the transaction
• take a flash loan in the market loan asset
• swap into the collateral asset
• supply collateral into Morpho
• borrow the loan asset to close the loop

This route is implemented in the frontend as a bundled leverage transaction and uses Velora/ParaSwap-based swap routing together with Morpho bundler infrastructure.

ERC4626 leverage

For some markets, Monarch can skip the swap leg entirely.

If the market collateral token is an ERC4626 vault token whose asset() matches the market loan token, Monarch can use a deterministic ERC4626 route. In that route, the leverage flow uses vault conversion steps instead of a DEX swap.

This is the clean route for vault-share / underlying pairs.

Deleverage

Monarch also supports deleverage for supported routes.

The deleverage flow mirrors the leverage routing model:

• swap-backed unwind for general pairs
• ERC4626 redeem-based unwind for supported vault-share pairs

This lets users reduce leverage or close the loop through the same route family used to open the position.

ERC4626 details

Monarch includes explicit support for leveraging ERC4626 collateral tokens.

In the current frontend, ERC4626 route detection is based on the collateral token's asset() value matching the market loan token. The dedicated ERC4626 leverage/deleverage implementations use Bundler V2-style transaction construction, while generalized swap-backed routes use the newer swap path.

Fees

The current leverage fee configured in the frontend is:

• 0.0075% (0.75 bps)
• capped at $5 per transaction when the USD ceiling can be applied

The preview shown in the app is the source of truth for the actual transaction you are about to sign.

Risk note

Leverage increases liquidation risk as effective LTV rises.

Before signing, review:

• projected collateral added
• projected debt
• route type
• fee preview
• resulting risk / liquidation buffer