Liquidators
are incentivized to perform liquidations and contribute to the protocol's solvency through a Liquidation Incentive. This incentive consists of two components:
• 7% Liquidator Bonus: Liquidators receive this incentive for successfully executing liquidations and contributing to the protocol's efficiency.
• 3% Reserve Allocation: A portion of the incentive is allocated to the protocol reserves.
Further more, during liquidation, all of the user's collateral
are transferred to the liquidator
and accountTokens[user]
deleted. If the borrower's collateral
exceeds the amount of debt
owed, they will not receive any compensation for the additional collateral provided.
This is where the transfer of user collateral to the liquidator
happens.
After the transfer, the user's accountTokens[user]
gets deleted, zeroing out the user's tokens.
Example
User deposits $1000 of USDC to the protocol as collateral.
The collateral factor of USDC is 60%.
Calculate the "Credit Limit"
Credit Limit = $1000 * 0.6 = $600
Therefore, in this example, the credit limit of $600.
From this, collateral=$1000
which is greater than Credit Limit=$600
.
In the event that the user borrows the whole Credit Limit
and hit $0 Credit Remaining
, they become eligible for liquidation.
When a liquidator
steps in to fix this user, they get to take the whole collateral=$1000
without any surplus, in this case (collateral- Credit Limit =$400
) being compensated back to the user
.
Manual Review
Consider implementing a mechanism to return excess collateral to borrowers
after their debt
has been settled and any fees or penalties have been deducted. This ensures that borrowers
are not unfairly deprived of their surplus assets.
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