Skip to content

Latest commit

 

History

History
70 lines (49 loc) · 3.51 KB

High1-LiquidatorRewardIsAlwaysVerySmall.md

File metadata and controls

70 lines (49 loc) · 3.51 KB
Raw

High Risk Issue: Size 🕵️

Normal Liquidate action incentives are too low due to decimals misshandling

Explanation && Impact 📌📈

The liquidatorProfitCollateralToken reward that incentivizes liquidators is always too small. We are talking about 10^(-12) orders of magnitude smaller than it should.

This is because liquidatorProfitCollateralToken is determined like so:

// 🟢1️⃣ `debtInCollateralToken` has 18 decmals but `liquidatorReward` always has 6 decimals
liquidatorProfitCollateralToken = debtInCollateralToken + liquidatorReward;

// 🟢2️⃣ This is because `liquidatorReward` is always taken from this _min_ comparison. And it compares
// `assignedCollateral - debtInCollateralToken` amount, which is in collateral decimals => 18, with the Math
// operation over a future value on credit, with 6 decimals. Clearly, the 18 decimals value will always be bigger. Around 10^(12) times bigger.
uint256 liquidatorReward = Math.min(
                assignedCollateral - debtInCollateralToken,
                Math.mulDivUp(debtPosition.futureValue, state.feeConfig.liquidationRewardPercent, PERCENT)
);

Liquidations of risky unhealthy positions are essential to the system and its incentives for them to happen must exit. Yet receiving just some wei's of value for that is not enough. It is true that the protocol expects up-to 5% of the credit value as extra reward for the liquidator, and this amount is so small that it is inside the 5%. But as said it is an incredibly small, 10^(-12) orders of magnitude smaller, which can not incentivize liquidators to act as just gas cost will be bigger.

The code has already some features that tend to make positions' liqudations profitable. Like having a minimum credit amount for each loan, yet all becomes useless if you are only taking such a small fraction as the extra incentive.

Proof Of Concept (PoC) 👨‍💻💻

Import import "forge-std/console.sol"; in Liquidate.sol and add the following loggings in the executeLiquidate() functon (see where in the code here):

console.log("These are the 2 amounts being compared to take the min:");
console.log(assignedCollateral - debtInCollateralToken);
console.log(Math.mulDivUp(debtPosition.futureValue, state.feeConfig.liquidationRewardPercent, PERCENT));
uint256 liquidatorReward = Math.min(
            assignedCollateral - debtInCollateralToken,
            Math.mulDivUp(debtPosition.futureValue, state.feeConfig.liquidationRewardPercent, PERCENT)
);
console.log("Chosen one: ", liquidatorReward);
liquidatorProfitCollateralToken = debtInCollateralToken + liquidatorReward;

Run one of the code's liquidation tests to see the logs:

forge test --match-test "test_Liquidate_example" -vvv

Recommended Actions 🛠️

Use the futureValue converted to collateral units. This value is curiously calculated just a few line of code above:

uint256 debtInCollateralToken = state.debtTokenAmountToCollateralTokenAmount(debtPosition.futureValue);.

uint256 liquidatorReward = Math.min(
    assignedCollateral - debtInCollateralToken,
-    Math.mulDivUp(debtPosition.futureValue, state.feeConfig.liquidationRewardPercent, PERCENT)
+    Math.mulDivUp(/* 👁️▶️ */ debtInCollateralToken, state.feeConfig.liquidationRewardPercent, PERCENT)
);