Core Contracts

Summary

If a user's health factor falls below the liquidation threshold, anyone can initiate a liquidation on them and they have a grace period to repay their full debt. During the grace period, changes to the liquidation threshold can be made both by admins and governance proposals, but the user's initiated liquidation cannot be reverted even if the change to liquidation threshold means their position is now healthy.

Vulnerability Details

If a user's health factor falls below the liquidation threshold, anyone can initiate a liquidation on them. Once initiated, the user has a grace period to repay their full debt.

In the Governance of the protocol, proposals can be created, including proposal types to tweak parameters of the protocol, including changes to the liquidation threshold.

Aside from Governance, admins of the protocol can also adjust the liquidation threshold.

So while a user's grace period is still ongoing (default is 3 days), admins can change the liquidation threshold and/or a passed governance proposal can execute. After the changes, the user's health factor can improve to a position in which they are now considered healthy and a liquidation cannot be initiated on them. But if this change is made after a liquidation is already initiated and before the grace period passses, the user is sill forced to repay their full debt (since partial is not allowed) and they have no way to revert the initiated process.

Impact

Even if changes to liquidation threshold are made while a user is in their grace period, nothing can be done to revert the initiated liquidation despite the health factor improving and user should not be subject to liquidation anymore. User should be allowed to revert the initiation if their health factor has improved.

Tools Used

Manual Review

Recommendations

Allow reverting of initiated liquidation inside the grace period if changes to liquidation threshold means the user's position is now healthy.