In-Kind Redemption

In-kind redemption is an exit path for depositors when a vault cannot return all of its underlying asset because liquidity is deployed in Morpho Blue markets and borrowed out. Instead of waiting for the curator to reallocate funds or for borrowers to repay, the depositor burns vault shares and receives the corresponding vault positions: Blue supply positions for Vault V1, or available idle assets followed by Blue supply positions for Vault V2.

IKR transfers the vault's market exposure for the illiquid part of the exit; it does not create liquidity or convert that position into the underlying asset. After the exit, the user manages each Blue position independently and can withdraw the underlying asset when liquidity becomes available. The user is no longer exposed to the vault's future curation decisions or fees for that position.

IKR complements normal withdraw and redeem; it does not replace them. Use the normal path while underlying liquidity is available because it returns the vault asset directly and, on Vault V2, avoids the force-deallocation penalty. When Vault V2 uses IKR, it returns available idle assets first and applies the penalty only to the force-deallocated remainder. Because the selected market order determines which positions the user receives, integrations should make that outcome clear before submission.

Follow Exit an illiquid vault in kind for the end-to-end integration, or use the Morpho SDK in-kind redemption reference for parameters and errors.