Part 2

Summary

The liquidation logic in the protocol fails to isolate margin between different markets, allowing a single collateral deposit to be used for multiple leverage positions across different markets. This open the door for a cross market liquidation cascade exploit, where an attacker leverages the same collateral multiple times and force liquidations across all positions by manipulating one market.

Vulnerability Details

Exploit Strategy:

1. Deposit small collateral

• The attacker deposit $10,000 in collateral

• Uses 10x leverage to open large positions in multiple market (e.g., BTC/USD, ETH/USD, SOL/USD).

• Total leverage exposure: $300,000 (3 market x $100,000 positions each).

1. Manipulate Low Liquidity Market

• The attacker target a low liquidity market (e.g., SOL/USD).

• Uses spot trading or large market orders to artificially dump the price.

• This reduce their margin balance, triggering liquidation for SOL/USD.

1. Trigger Cross-Market Liquidation

• Since all positions share the same collateral, the liquidation of SOL/USD reduces total margin.

• The BTC/USD, ETH/USD now lacks sufficient collateral.

• The protocol force liquidate as well even if they were profitable!

1. Profit From The Forced Liquidation

• The attacker places limit order at cheap price before the liquidation event.

• When liquidation happen, they buy asset at artificially low price due to slippage.

• This allow them to profit while draining traders funds and disrupting market stability.

• The liquidation function does not isolate margin per market

All position rely on the same margin, making them vulnerable to liquidation cascade.

• Liquidation function does not consider cross-market risk

If one market is manipulated, it drains margin across all positions.

• Forced Liquidations Cause Market Instability
  Liquidations immediately dump positions on the market, causing slippage.

This allows attackers to profit from liquidated positions by placing cheap limit order.

Impact

• Loss of trader funds due to forced liquidations

• Massive slippage and protocol wide instability

• Potential insolvency if liquidations fail to recover sufficient margin

• Severe damage to the protocol reputation and liquidity provider confidence

Tools Used

Manual Review

Recommendations

1.** Isolated Margin Per Market**

• Require separate margin accounts for each market to prevent cascading liquidations.

1. Staggered Liquidations:

• Instead of liquidating all positions at once, liquidate one at a time to prevent full margin collapse.

1. Smarter Liquidation Auction:

• Instead of force-selling into the market, use an auction-based liquidation mechanism to reduce slippage.