Core Contracts

Summary

During periods of high market volatility or crashes, the protocol faces significant risk of insolvency due to critical limitations in its liquidation system. The combination of required full position liquidations, restricted liquidator access (only manager/owner), and sequential liquidation processing creates a bottleneck that could prevent timely liquidations of unhealthy positions.

Vulnerability Details

The liquidation system has three critical limitations as shown in liquidateBorrower() function.

1. Only manager/owner can finalize liquidations

1. Positions must be liquidated in full - no partial liquidations supported:

1. Liquidations must be processed sequentially, creating a bottleneck during market stress:

Impact

The protocol's restrictive liquidation system creates a critical risk of insolvency during market stress events. When a market downturn occurs, the requirement for full position liquidations combined with single manager processing creates a severe bottleneck. For example, during a 30% market drop, if multiple positions need liquidation, the sequential processing and full position coverage requirements would prevent timely liquidations while unhealthy positions continue to deteriorate. This can trigger a death spiral where the protocol becomes increasingly insolvent as it fails to process liquidations quickly enough to prevent the accumulation of bad debt.

Tools Used

Manual Review

Recommendations

Allow permissionless liquidators with incentives & add partial liquidation support