Oke last time I talk abt UwUlend for a while, tho imo there’s systemic risk w the bLUSD mkt given oracle price = floor price
In the event that bLUSD mkt premium >10% (90% LTV for stables on UwU), users can borrow bLUSD -> swap thru LP -> val of debt net worth more than collat
🧵
In the event that bLUSD mkt premium >10% (90% LTV for stables on UwU), users can borrow bLUSD -> swap thru LP -> val of debt net worth more than collat
🧵
So, for example, say bLUSD floor = 1.1 & mkt price = 1.3.
User deposits 1000 USDC -> borrows 818.18 bLUSD (90% LTV) -> swaps 818.18 bLUSD for 1063 USDC (not including swap/gas costs) -> runs away with debt and/or repeats process
User deposits 1000 USDC -> borrows 818.18 bLUSD (90% LTV) -> swaps 818.18 bLUSD for 1063 USDC (not including swap/gas costs) -> runs away with debt and/or repeats process
However, AFAIK there’s no way to solely manipulate the mkt price of bLUSD to the upside for this attack w.o being net unprofitable (regardless of bLUSD in UwU mkt/LP ratio) unless the attacker had alrdy planned on buying & hodling a bunch of bLUSD thru the LP to begin with
(Maybe could further amplify this thru taking advantage of the pool EMA oracle -> concentrated liq rebalancing to x “new” higher bLUSD price within the LP after large swap -> better bLUSD trade execution during the “attack”? Idk)
On the liquidator side of things, for liquidations to be net profitable within the given scenario (95% threshold + 5% bonus), there are a few options:
Deposit collateral (no flashloan) -> borrow bLUSD from the mkt -> pay off bLUSD debt -> receive stable collat + 5% liq bonus
Deposit collateral (no flashloan) -> borrow bLUSD from the mkt -> pay off bLUSD debt -> receive stable collat + 5% liq bonus
*no flashloan due to collat being “stuck” within the system bc bLUSD debt is apparent & net received in liquidation wouldn’t be enough to repay within the block
Now, a liquidator must find a way to repay their bLUSD debt whilst net profitable & not buying bLUSD on the mkt
Now, a liquidator must find a way to repay their bLUSD debt whilst net profitable & not buying bLUSD on the mkt
Naturally, this could be thru creating a “long term” bLUSD bond, which is EXTREMELY unfeasible for a simple liquidator lol (& this is only assuming <10% bLUSD mkt premium, or else the liquidator could literally perform the same attack instead of liquidating)
So, it’s p safe to say these liquidations wouldn’t occur in this fashion (borrowing bLUSD -> paying off debt)
If there’s no available bLUSD liq in the money mkt, a liquidator must buy bLUSD thru the LP, aka automatically uneconomical due to premium > liq bonus (>5% premium)
If there’s no available bLUSD liq in the money mkt, a liquidator must buy bLUSD thru the LP, aka automatically uneconomical due to premium > liq bonus (>5% premium)
The only way I can see bLUSD debt liquidations occurring is *if* mkt premium <5% & either a liquidator simply chickened in & owns bLUSD in the first place, or net current premium + swapping costs < 5%, tho regardless, imo this could be v dangerous for UwUlend depositors
Forgot that a USDC mkt doesn’t exist on UwU (tweet 2), simply substitute for DAI/USDT/LUSD :)
Loading suggestions...