Core Contracts

Summary

The liquidation process in the LendingPool contract lacks an incentive mechanism for calling the initiateLiquidation function. This could lead to delayed liquidations of unhealthy positions since there is no economic motivation for liquidators to monitor and initiate liquidations.

Vulnerability Details

The initiateLiquidation function allows anyone to start the liquidation process for an unhealthy position:

However, there is no reward or incentive for calling this function. The liquidator has to:

1. Monitor positions for unhealthy health factors

2. Pay gas costs to initiate liquidation

3. Wait for grace period to expire

4. Let Stability Pool finalize the liquidation and receive the rewards

Without incentives to call initiateLiquidation, borrowers may remain unliquidated even when they should be. This could result in lenders or/and the protocol suffering losses as borrowers accumulate bad debt

Impact

• Delayed liquidations of unhealthy positions due to lack of economic incentives

• Potential accumulation of bad debt in the protocol if liquidations are not initiated promptly

• Higher risk for the protocol during market downturns when quick liquidations are crucial

Tools Used

• Manual review

Recommendations

Add an incentive mechanism for liquidation initiators