In short
When a vault doesn't have enough available liquidity for your full withdrawal, in-kind redemption lets you exit from the vault anyway. What's available goes to your wallet, and the rest becomes a lending position in a Market you choose, which keeps earning interest. Your assets aren't lost, your exposure just moves from the vault to a Market directly.
This is what keeps Morpho Vaults V2 non-custodial: you can always exit, even when the vault has no liquidity.
Why can't I always withdraw everything?
When you deposit into a Morpho Vault, the vault lends your assets to borrowers in one or several Morpho Markets. This is how you earn yield.
Most of the time, the vault keeps enough available liquidity to pay out withdrawals right away. But when borrow demand is high, most of the assets can be lent out at once, leaving little available for withdrawals.
This is normal and usually temporary. It does not mean the vault has lost money. Your funds are lent to borrowers, who pay interest on them. Liquidity usually comes back as borrowers repay, new depositors come in, or higher rates encourage both. Read more in Morpho Vaults and available liquidity.
In the meantime, you have two options:
Withdraw what's available now and wait for more liquidity to come back.
Use in-kind redemption to exit more of your position now, up to what the Market you choose can take.
What does in-kind redemption do?
Instead of waiting for the vault to have available assets to withdraw again, you take over part of the vault's lending directly.
The vault returns what it can to your wallet, just like a normal withdrawal.
For the rest, the vault moves its lending position in a Market to you. You now lend to that Market directly and earn its interest rate (APY).
A redemption fee may apply to the part that becomes a Market position. Each vault sets its own fee, and the app shows it before you confirm. The fee isn't paid to Morpho. It stays in the vault and is shared by the depositors who stay.
Example
You have 10,000 USDC in a vault, but it only has 2,000 USDC available right now. You ask to withdraw all 10,000 USDC and choose a Market. The vault's redemption fee is 0.5%.
| Amount |
Withdrawn from the vault | 10,000 USDC |
Sent to your wallet (available liquidity, no fee) | 2,000 USDC |
Redemption fee (0.5% of the remaining 8,000 USDC) | 40 USDC |
Lending position you receive in the Market | 7,960 USDC |
These numbers are only an illustration. Real amounts and fees depend on the vault and the Market, and the app always shows them before you confirm.
How to use in-kind redemption in the Morpho app
Step 1: Start a withdrawal
Open the vault page, go to the Withdraw tab and enter the amount you want to withdraw.
If you ask for more than the vault can pay out right now, you'll see a warning like this:
Below it, the main button changes to Choose a Market.
Tip: if you only want cash in your wallet, lower the amount to what's available (or less) - you can also click on the underlined amount in the warning to get the exact amount available. The withdrawal then works as usual.
Step 2: Choose a Market
Click Choose a Market. A window lists the Markets the vault lends to. For each Market you'll see:
Market: the asset borrowers use as collateral, and the asset you lend.
Capacity: the most you can redeem through this Market right now (before the fee).
APY: the interest rate you'll earn as a lender in this Market.
At the top, you'll see how much will be withdrawn as a lending position, and a summary showing how much goes to your wallet.
Select the Market you want. The window then shows the split:
To your wallet: what the vault pays out now.
As a [Market] position: what you'll receive as a lending position, after the fee.
What to consider when choosing a Market:
Collateral you're comfortable with. As a lender, you're exposed to that Market's collateral and settings.
APY. This is what your position will earn.
Capacity. Pick a Market that can take your full amount if you want to exit in one go.
Capacity isn't the Market's liquidity. Capacity only limits this redemption. Withdrawing your new position later depends on the Market's own available liquidity.
What if the Market can't take my full amount?
Each Market can only take so much. If the Market you picked has less capacity than you need, the app tells you:
Only X can be redeemed through this Market now. The remaining Y stays deposited in your vault.
You can still continue. Only the amount shown is redeemed, and the rest stays in the vault and keeps earning as before. You can then repeat these steps for the remainder and choose another Market.
If no Market can take the full amount, the app warns you before you pick one.
Step 3: Review
Click Review to see a summary before you confirm:
The amount withdrawn from the vault, and your vault balance before and after.
The Market your position will be supplied to.
You receive: the amount to your wallet, and the amount as a Market position (net of fees).
You can hover the info icons to see the full breakdown, including the fee.
The app also reminds you:
You receive a lending position on [Market]. Withdrawing it later depends on that Market's liquidity.
Note: the wallet amount shows as "up to" because available liquidity can change in the few seconds before your transaction confirms. The confirmation screen shows the final amounts.
Step 4: Confirm
Click Redeem and approve the request(s) in your wallet.
When it's done, the app confirms the amounts you received and links to your Portfolio.
Step 5: Manage your new position
Your new position appears in Portfolio, under Variable Rate Markets → Lend positions. From there you can:
See how much you're lending and the APY you're earning.
Withdraw it to your wallet whenever that Market has enough liquidity.
Things to keep in mind
A Market lend position isn't cash. It's a loan to borrowers in that Market, and it earns interest. To turn it into assets in your wallet, withdraw it from your Portfolio or the market page when the Market has liquidity.
You're no longer in the vault for that part. The vault curator no longer manages the amount you moved to the Market. It stays in the Market you chose until you withdraw it.
It's optional. You can always withdraw from the vault only what's available now and wait for liquidity to come back.
Availability. It only appears when you ask to withdraw more than the vault has available, on eligible vaults and networks.
If you have any issue or question, get in touch through the chat at the bottom right of this page 👉