Skip to content

feat: add liquidation considerations architecture and white paper #93

New issue

Have a question about this project? Sign up for a free GitHub account to open an issue and contact its maintainers and the community.

By clicking “Sign up for GitHub”, you agree to our terms of service and privacy statement. We’ll occasionally send you account related emails.

Already on GitHub? Sign in to your account

Open
wants to merge 2 commits into
base: master
Choose a base branch
from

Conversation

euler-mab
Copy link
Contributor

No description provided.

@euler-mab
Copy link
Contributor Author

Added the following extras to the whitepaper:

"Moreover, leveraged LPs are vulnerable to liquidation if collateral values drop or debt ratios rise. This can happen for reasons completely independent of any swap activity. For example, collateral can sometimes incur bad debt. EulerSwap account owners are therefore responsible for monitoring the health of their vaults and should take proactive steps if collateral values drop or debt values rise in order to avoid liquidation."

And later on:

"EulerSwap account owners are also responsible for monitoring the health of their vaults and should take proactive steps if their collateral accrues bad debt or drops in value—since this can happen independently of swap activity, opening up the potential for liquidation if someone performs a large swap on their curve."

@euler-mab
Copy link
Contributor Author

Added the following to architecture.md:

Liquidation Considerations

It is important for market makers running EulerSwap instances to parameterise their curve in such a way as to ensure that swaps cannot drive their Euler account towards liquidation. EulerSwap account owners are also responsible for monitoring the health of their vaults and should take proactive steps if their collateral accrues bad debt or drops in value—since this can happen independently of swap activity.

This is important, because if another position in the same collateral vault is liquidated and leaves behind bad debt, the value
of the shared collateral used for liquidity could drop. This would affect the effective LTV of all positions using that
vault, including those managed by the EulerSwap AMM. An attacker could exploit this situation by then initiating a swap that pushes the AMM's position right up to the liquidation threshold, leveraging the degraded collateral value caused by unrelated bad debt.

Sign up for free to join this conversation on GitHub. Already have an account? Sign in to comment
Labels
None yet
Projects
None yet
Development

Successfully merging this pull request may close these issues.

2 participants