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Liquidity & the Public Allocator

One of the most useful properties of Isolated Markets is that you can often borrow more than the loan asset sitting directly in the market. This page explains how a market's liquidity is composed, and how the Public Allocator sources extra liquidity on demand.

This mechanism comes from Morpho. For the protocol-level details, see the Morpho documentation on the Public Allocator.

How a market's liquidity is composed

On a market's details page, the Loan panel shows Total Liquidity. Hovering the information icon breaks it into two parts:

Total Liquidity = Market Liquidity + Public Allocator Liquidity

  • Market Liquidity is supplied funds sitting idle in this market — available to borrow instantly.
  • Public Allocator Liquidity can be pulled in from other Morpho markets on demand, in the same borrow transaction, up to flow-cap limits set by vault curators. It lets this market run at high utilization while still offering large borrows.

So:

Total Liquidity = Market Liquidity + Public Allocator Liquidity

The Market Overview panel visualises the same idea, splitting the market into Borrowed, Market liquidity, and Public Allocator portions.

Why utilization is high

Isolated markets are deliberately run at high utilization. Curators keep each market's own direct supply highly deployed — earning yield for suppliers — and rely on the Public Allocator to top up liquidity only when a borrow needs it. That is why a market can show very little idle Market Liquidity yet still support large borrows: most of the depth is held in reserve across other Morpho markets and pulled in only when required.

What is the Public Allocator?

The Public Allocator is a Morpho mechanism that lets a market borrow liquidity from other Morpho markets that share the same curator's vaults. Curators are the professional risk managers who run Morpho vaults; they configure flow caps that bound how much liquidity may move into or out of each market per transaction. Reallocation always stays within those flow caps, so it can never move more than the curator has permitted.

When you request a borrow larger than the idle Market Liquidity, the app automatically:

  1. Calculates the shortfall (borrow amount − idle market liquidity).
  2. Finds Morpho markets the curator's vaults can reallocate from, and pulls the shortfall from them — largest sources first — staying within flow caps.
  3. Bundles the reallocation and your borrow into a single transaction, so the liquidity is in place exactly when you borrow it.

If the combined reachable liquidity still cannot cover the requested amount, the borrow is not offered at that size — reduce the amount and try again.

The reallocation fee

Pulling in Public Allocator liquidity can carry a reallocation fee set by the vault curators. When a borrow requires reallocation, the Borrow dialog:

  • Shows the fee, paid from your wallet on top of network gas.
  • Replaces the plain Borrow action with an Authorize step (a one-time authorization of the Morpho bundler) followed by a combined Reallocate & Borrow action.
  • Requires you to tick I acknowledge the reallocation fee before you can confirm.

If your borrow fits within idle Market Liquidity, no reallocation is needed, there is no reallocation fee, and the borrow executes as a single ordinary Borrow action.

Worked example

Consider a WETH / USDC market with 11M USDC of idle Market Liquidity and additional reachable Public Allocator Liquidity:

  • Borrowing 11M USDC or less is covered entirely by idle liquidity. The dialog shows a single Borrow action and no reallocation fee.
  • Borrowing 11.1M USDC exceeds idle liquidity by 0.1M. The app sources the extra 0.1M through the Public Allocator, shows the reallocation fee acknowledgement, and executes Authorize → Reallocate & Borrow in one transaction.

From your perspective the result is the same — the full borrowed amount lands in your wallet — but the second case quietly reallocated liquidity from other Morpho markets to make the larger borrow possible.

FAQ

Do I have to do anything special to use the Public Allocator?

No. The app detects when a borrow needs reallocation and assembles the right transaction automatically. You only need to acknowledge the reallocation fee when one applies.

Is reallocated liquidity riskier?

Reallocation only moves liquidity between markets that a curator's vaults already support, and only within the curator-configured flow caps. Your market's own parameters (collateral, oracle, LLTV, IRM) are unchanged. See the Risk Architecture section.

Where can I read more?

See the Morpho documentation for the underlying Public Allocator and vault mechanics, and Borrowing Assets for the borrow flow.