DittoETH

Summary

In this protocol we can shutdown a market if global collateral of an asset market falls under 1.1.
We can also flag a short if it's CR falls under 4 and liquidate it if it falls under 1.5.
So if a short falls under 1.1 and it brings with it the global CR also under 1.1 he could get liquidated or market could be shutdown.
A problem that could happen is that if a big shorter fall under 1.1 CR and bring AssetCollateralRatio under 1.1 too, he/she could call shutdownMarket and make honest shorters (with a CR > 1,5) lose money (sinking everyone instead of only himself/herself)

Vulnerability Details

For simplicity I will take an example of a market where there are 4 shorts on it but we could easily imagine a more complicated scenario with dozens of small shorts and one really big.

Imagine 3 shorts at T1 :

S1 = S2 = S3 :

• ErcAmount = 2000

• Price = 10

• CR = 15

• Collateral = 2000 * 10 * 15 = 300 000

S4 :

• ErcAmount = 1 000 000

• Price = 10

• CR = 5

• Collateral = 1 000 000 * 10 * 5 = 50 000 000

=> Global CR at T1 = (300 000 * 3) + 50 000 000 / (10 * ((2000 * 3) + 1 000 000)) = 5,059

and then at T2 price went up to 46 :

S1 = S2 = S3 :

• ErcAmount = 2000

• Price = 46

• CR = 300 000 / (2000 * 46) = 3.260 => Eligible for flag but not secondary liquidation

• Collateral = 300 000

S4 :

• ErcAmount = 1 000 000

• Price = 46

• CR = 50 000 000 / (1 000 000 * 46) = 1,087 => Eligible for both flag and secondary liquidation

• Collateral = 50 000 000

=> Global CR at T2 = (300 000 * 3) + 50 000 000 / (46 * ((2000 * 3) + 1 000 000)) = 1,099 => Eligible for market shutdown

As we can see one big short with a bad CR ( < 1.1 ) can impact global Asset CR and instead of being liquidated if price go up, he/she could bring good shorter with him/her instead of sinking on its own

Impact

A big shorter could prefer to sink everyone (including good CR shorters) instead of being liquidated

Tools Used

VS Code,excel

Recommendations

3 solutions could exist :

• prevent shorters from calling marketShutDown()

• Add a maximum ErcAmount when creating a short

• Only punish shorters with really bad collateral (<1.1) by allowing good shorters to recover their collateral (or a part of )