Lengthy Liquidation grace period for volatile assets could lead to accumulation of bad debt
Summary
Long Liquidation grace periods can create bad debt
Vulnerability Details
liquidationGracePeriod
BASE_LIQUIDATION_GRACE_PERIOD = 3 days ( Range 1 - 7 days)
The grace period is the time between when a user's health factor drops below 1e18
and when they can be liquidated.
If too long market volatility could reduce collateral value further and
users may not repay creating bad debt in the system.
The likelihood of this is low however as Real World Asset collaterals
arent expected to crash like normal NFTs.
However ensure that extremely volatile markets have lower GRACE_PERIOD.
For example , If price falls 10%+ in a short time,
liquidation should be allowed immediately.
Impact
Bad debt due to flash crashes of housing market prices.
Impact : High
Likelihood : Low
Recommendations
Liquidation grace periods can be dynamic , based on the volatility of the asset
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