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Unwind a Morpho Vault V2

This guide explains how to safely wind down a Morpho Vault V2, ensuring depositors can withdraw their funds while removing market exposure and preventing new capital from entering.

Step 1: Prevent New Deposits

In Morpho Vault V2, deposits flow exclusively through the liquidity adapter (if set). Decreasing its cap to 0 is sufficient to block all new deposits. Cap decreases are instant and exempt from timelocks in Morpho Vault V2. See the Managing Adapters Caps tutorial for context on how caps are structured.

The Curator or Sentinel calls decreaseAbsoluteCap and decreaseRelativeCap for the liquidity adapter id:

vault.decreaseAbsoluteCap(liquidityAdapterIdData, 0);
vault.decreaseRelativeCap(liquidityAdapterIdData, 0);

Once the liquidity adapter cap is 0, incoming deposits will revert. Withdrawals remain fully unaffected.

Step 2: Remove Market Exposure

The Allocator or Sentinel calls deallocate to withdraw assets from each active market and return them to the vault as idle assets. See the Liquidity Curation tutorial for more context on how allocations and the liquidity adapter interact.

vault.deallocate(adapter, marketData, assets);

If a market is illiquid (high utilization), this step must be repeated incrementally as liquidity becomes available. Set up monitoring to track when funds can be deallocated and an automation to automatically deallocate assets to idle.

Step 3: Move Liquidity Adapter Funds to Idle

If the vault uses a Liquidity Adapter, the Allocator should deallocate all funds from it and move them to pure idle. Pure idle assets have zero yield but are immediately available for withdrawals, which is the priority during a wind-down.

vault.deallocate(liquidityAdapter, data, assets);

Step 4: Reduce Yield to Zero

Once all funds are held as idle assets in the vault, it yields 0%. This is the natural outcome of completing Steps 1–3. No additional action is required to suppress yield.

Optional: Remove Adapters

Once all funds have been withdrawn from an adapter and its allocation reaches zero, the Curator can formally remove it (more about this process here).

This is optional during wind-down, an adapter with zero allocation and zero caps poses no risk to depositors.

Optional: For Listed Morpho Vault V2

If your vault is listed on the Morpho app, reach out to the Morpho Association to coordinate the off-chain wind-down:

  • Display a deprecation warning on the vault's page in the app, informing depositors that the vault is being wound down.
  • Remove the vault from the main listing once deposits are blocked and the wind-down is underway.
  • Notify users through the usual communication channels (governance forum, curator socials).