HHK - liquidationFee changes could affect liquidators

[sherlock-admin2]

HHK

Medium

liquidationFee changes could affect liquidators

Summary

The liquidationFee will be initially set to 0 but might be changed to 20-30% in the future. The way the fee is applied could result in unprofitable liquidations.

Root Cause

In the function _transferAssetsToLiquidator() the liquidationFee is applied directly on the asset amount to be liquidated.

This is an issue as currently the liquidationDiscount is 10%, if the liquidationFee was increased to 20% then the liquidators would end up receiving less value than they reimbursed and so be unprofitable.

Additionally if that change happened while a liquidation transaction was in the mempool the liquidator would receive less tokens than expected as he has no way to enforce the minimum to receive after fees.

Internal pre-conditions

• Change of the liquidationFee to 20% or 30% as can be seen on the contest doc.
• Liquidation transaction in the mempool during the change that was sent before the change.

External pre-conditions

No response

Attack Path

No response

Impact

• The fee that will be set in the future will make liquidation unprofitable.
• The fee update may frontrun a liquidation transaction and lead to a few unexpected unprofitable liquidations at the expense of the liquidators.

PoC

No response

Mitigation

Consider not allowing the liquidationFee to be bigger than the liquidationDiscountor applying the fee on the liquidationDiscount.

Duplicate of #91