The answer is straightforward: in most cases, you don't need to redeem. When a vault exits a lending market, there are two paths: "soft deprecation" and "forced removal." Only in rare emergencies (like a complete market failure) will your funds be affected, and the impact depends on whether the vault is V1.0 or V1.1.
First, understand two levels of withdrawal: stopping new deposits and withdrawing existing funds.
Step 1: Check if the curator is doing a "soft deprecation" or a "forced removal"
Determine what kind of exit the vault is using on the target market. Check the vault's announcements or on-chain records: submitCap(0) (sets supply cap to 0) blocks new funds, reallocate moves existing funds out, and submitMarketRemoval triggers forced removal. That tells you which operation is happening.
Scenario A: Soft Deprecation — You Don't Need to Redeem
The curator first calls submitCap(0) to set the supply cap to 0, blocking new funds from entering the market. Then the allocator calls reallocate to gradually pull existing funds back into the vault's idle assets. If market liquidity is low (borrowers haven't repaid), the withdrawal must be done in batches as liquidity becomes available when loans are repaid.
During this process, your deposit is unaffected. Funds are simply moved from that market to idle cash (earning zero yield) and you can withdraw anytime. The vault's share price does not drop because of the exit. Morpho officially recommends curators notify depositors that "yield will gradually drop to zero," but no user action is needed.
Scenario B: Forced Removal — V1.0 Causes Immediate Loss, V1.1 You May Be the Last to Absorb the Loss
This is an emergency: the market contract has issues, functions keep reverting, and funds cannot be withdrawn normally. The curator calls submitMarketRemoval to forcibly remove that market from the vault's accounting ledger.
Forced removal goes through a timelock. After the waiting period, the allocator can officially remove the market from the withdrawal queue.
Key Difference: How Losses Are Distributed
V1.0 Vault: The moment the market is forcibly removed, the loss of funds in that market is immediately "socialized," shared proportionally among all share holders. The share price drops instantly. You do nothing and your net value gets cut. If the market later recovers and funds are retrieved, the share price can go back up.
V1.1 Vault: Losses are not immediately spread to all users at the time of removal. But if those funds can't be recovered, the last users to withdraw will bear the entire loss, meaning they won't be able to withdraw fully.
Risk note: V1.1 has a recovery path — if someone deposits an amount equal to the shortfall into the vault after forced removal but before the loss is triggered, they can plug the hole and prevent the last withdrawers from bearing the loss. But this is not standard practice, and you shouldn't count on a third party stepping in every time.
Common Mistakes
Many people rush to redeem as soon as they see a "vault exits market" announcement, fearing their funds are gone. But in a soft deprecation, funds are just moved from an interest-earning market to idle (earning zero), and principal can be withdrawn anytime. Redeeming early only sacrifices the last bit of yield you could have earned. Conversely, if a V1.0 vault performs forced removal, seeing the announcement and then redeeming is already too late — the loss was already shared among shares at the moment of removal.
Next Steps
When you see a vault exiting a market, first check the exit type. If you find submitMarketRemoval in the Morpho on-chain records, it's a forced removal. If only submitCap(0) and reallocate appear, it's a soft deprecation. In a soft deprecation, you don't need to do anything; just wait for the allocator to pull all funds back to idle. If it's a forced removal and you're a V1.0 vault depositor, the share price already reflects the loss, so redeeming now only locks in the loss. If you're in a V1.1 vault and the market size is large, you might consider whether to exit early before the "last withdrawer bears the loss" scenario hits — but note there is no clear on-chain signal telling you if you'll be last. You can only roughly judge by watching other depositors' withdrawal behavior. If you're not confident, don't act rashly.
