Summary

According to Beedle README:

When a lender no longer wants to be in a loan, but there is no lending pool available to give the loan to, lenders are able to put the loan up for auction. This is a Dutch Auction where the variable changing over time is the interest rate and it is increasing linearly. Anyone is able to match an active pool with a live auction when the parameters of that pool match that of the auction or are more favorable to the borrower. This is called buying the loan. If the auction finishes without anyone buying the loan, the loan is liquidated. Then the lender is able to withdraw the borrowers collateral and the loan is closed.

From the above we can conclude: lenders can put loans up for auctions at will without needing sufficient justification or valid grounds, subjecting borrowers to face potential liquidations in the case a lender doesn't purchase the loan.

Impact

A borrower that sees one of his loans in an auction has two options:

• Pay back: if there no valid grounds to be put in this situation this is the equivalent to being forced to pay.

• Wait: If the borrower can't pay back the loan, he must wait to see if another lender see the loan attractive and decides to purchase it. But this is double-edge sword that could end up being a liquidation if no lender purchase the loan.

Tools Used

Manual

Recommendations

While a liquidation mechanism is essential for lenders to safeguard the liquidity of their pools, I strongly recommend implementing a more robust and transparent system to determine when a lender should initiate an auction for a loan. This approach will prevent potential malicious or irresponsible actions by lenders to ensure that borrowers are not put in unfavorable situations concerning their loans.