Melodic Mocha Aardvark
Medium
The contract allows for reducing collateral but does not provide a way to increase collateral during refinancing
This is evident in the _refinance function:
function _refinance(Refinancing calldata refinancing) private returns (uint256 id, Loan memory newLoan, uint256 protocolFee) {
// ...
if (collateralAmountRequired > loan.collateralAmount) {
revert InsufficientCollateral();
}
// ...
_transferExcessCollateralIfAny(positionId, borrower, collateralAmountRequired, loan.collateralAmount);
// ...
}The function checks if the new collateral requirement is not higher than the existing collateral and transfers excess collateral back to the borrower if the new requirement is lower. but there's no mechanism to increase collateral if market conditions or loan terms would benefit from it.
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- In volatile markets, the inability to increase collateral during refinancing could lead to higher default risks if the value of the collateral decreases relative to the loan amount.
- Borrowers cannot take advantage of refinancing opportunities that might require additional collateral but offer better terms.
- borrowers might be willing to provide more collateral for better loan terms, but the current system doesn't allow for this.
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- You can Implement a collateral increase mechanism in the refinancing process
- Add a separate function for borrowers to increase collateral outside of refinancing