Part 2

Summary

The function CreditDelegationBranch::settleVaultsDebt has issue with debt check. The condition if (ctx.vaultUnsettledRealizedDebtUsdX18.lt(SD59x18_ZERO)) checks if the vault is in debt. However, vaults in debt have ctx.vaultUnsettledRealizedDebtUsdX18 > 0, so this check fails to execute what it's supposed to do

Vulnerability Details

When vaults are in debt, it has more marketsRealizedDebtUsd than deposited USDC. So it is required to swap asset to USDC to settle debt. But according to current implementation, it does the opposite. Inside settleVaultsDebt, it swaps USDC to asset even when debt is positive. Vault's unsettledRealizedDebtUsdX18 is calculated by subtracting depositedUsdc from marketsRealizedDebtUsd. So when debt is positive, there is more usd issued in vault's connected markets than deposited USDC in vault

Impact

Vaults in debt do not settle their debt because the condition is incorrect rather it is increasing debt and in else section it is increasing credit. This will imbalance the vault and the vault will continue to accumulate debt, usd tokens will lose USDC backing if dent is not handled correctly

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