Core Contracts

Summary

The LendingPool contract's collateralization checks allow users to borrow up to the full liquidation threshold, creating positions that are immediately vulnerable to liquidation. This design flaw undermines the protocol's risk management.

Vulnerability Details

The LendingPool's borrow() function permits borrowing up to 80% (liquidationThreshold) of collateral value: LendingPool#L344-L345

See this flow, a user deposits 100 ETH as collateral when ETH = $2000. They can borrow up to 80% ($160,000). If ETH drops just 1% to $1980, their position becomes liquidatable, as their collateral value ($198,000) falls below the required threshold.

Because the borrow() function uses the liquidation threshold directly as the borrowing limit, rather than maintaining a safety buffer between the maximum borrow amount and the liquidation threshold.

Impact

This vulnerability creates systemic risk by allowing positions to be created at the liquidation threshold, making them immediately vulnerable to market volatility. Users can borrow up to exactly 80% of their collateral value, making them immediately vulnerable to liquidation if prices decline even slightly.

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