Core Contracts

Summary

The finalizeLiquidation function relies on the Stability Pool to trigger liquidations. If the Stability Pool is paused, all liquidations are blocked, allowing unhealthy positions to persist beyond the liquidation grace period, jeopardizing the protocol’s solvency.

Vulnerability Details

The finalizeLiquidation function is callable only by the Stability Pool:

Problematic Scenario

• Unhealthy positions are flagged for liquidation and a grace period begins.

• If the Stability Pool is paused, finalizeLiquidation cannot be called.

• Once the grace period expires, these positions should be liquidated, but the pause halts this process indefinitely.

Impact

• Protocol Insolvency Risk: Collateral shortfalls may occur, affecting protocol health.

• User Exploitation: Borrowers can intentionally create unhealthy positions without facing liquidation.

• Economic Risk: Undermines stability and lender confidence.

Tools Used

Manual code review.

Recommendations

• Allow Fallback Liquidations: Permit a designated emergency role to finalize liquidations during Stability Pool pauses.

• Decouple Liquidations: Remove dependency on the Stability Pool’s active state for critical liquidation functions.