Audit Liquidation Calculation

Liquidation Calculation Auditor

When to Use

• Auditing liquidation reward calculations, fee distribution, collateral valuation
• User mentions: liquidation reward, protocol fee, minimum collateral, yield, PNL, self-liquidation, oracle manipulation, liquidation profitability
• Analyzing liquidation economics, fee structures, collateral calculations
• Reviewing reward priorities, decimal handling in liquidations

Audit Workflow

IMPORTANT: Announce skill usage at start of analysis

Begin with: "I'm using the audit-liquidation-calculation skill to analyze this contract for liquidation calculation and economic vulnerabilities..."

1. Scan for liquidation calculation operations

   • Search: liquidate, liquidationReward, liquidationBonus, protocolFee, collateralValue, minimumCollateral, yield, PNL, earnedYield
   • Focus: reward calculations, fee priorities, collateral valuations, decimal handling

2. Check against vulnerability patterns

   • Reference reference.md for complete checklist
   • Compare code against example.md

3. Validate exploitability

   • Check access control first - grep for onlyOwner|onlyAdmin|onlyGovernance modifiers
   • Can non-privileged actors exploit liquidation calculation issues?
   • Are liquidator rewards calculated correctly with proper decimals?
   • Are rewards paid before or after other fees?
   • Do protocol fees make liquidation unprofitable?
   • Does minimum collateral account for liquidation costs?
   • Is yield/PNL included in collateral value?
   • Are swap fees charged during liquidation?
   • Can users self-liquidate profitably via oracle manipulation?
   • Verify no compensating protections exist
   • Downgrade severity if admin-only unless systemic liquidation failure

4. Generate report

   • Use deliverable template below
   • Include economic analysis and PoC
   • Rank by severity

Core Vulnerability Patterns

See reference.md for full checklist. Key patterns:

1. Incorrect liquidator reward → decimal precision errors make rewards unusable
2. Unprioritized liquidator reward → other fees paid first, no incentive remains
3. Excessive protocol fee → 30%+ fees make liquidation unprofitable
4. Missing liquidation fees in requirements → positions unliquidatable at minimum
5. Unaccounted yield/PNL → collateral undervalued, unfair liquidations
6. No swap fee during liquidation → protocol loses revenue
7. Oracle sandwich self-liquidation → users profit from triggering oracle updates

Code examples: See example.md

Severity Criteria

Critical: Liquidator rewards calculated incorrectly causing systemic liquidation failure, profitable self-liquidation via oracle manipulation, MUST be exploitable by non-privileged actors High: Unprioritized rewards removing liquidation incentive, excessive protocol fees preventing liquidation, unaccounted yield causing unfair liquidations, MUST be exploitable by non-privileged actors Medium: Missing swap fees during liquidation, minimum collateral not accounting for costs, admin-only fee configuration issues with cascading liquidation impact Low: Suboptimal fee structures without security impact, admin-only parameter issues without immediate liquidation impact

IMPORTANT: Admin-only liquidation fee functions (onlyOwner, onlyAdmin, onlyGovernance) are MEDIUM or LOW severity unless:

• Invalid fee parameters cause systemic liquidation failure (e.g., protocol fee > liquidation bonus)
• Missing validation enables admin to drain liquidation rewards for personal gain
• Calculation errors directly lead to unprofitable liquidations and bad debt accumulation

False Positives - Do NOT Flag

• Protocols with trusted liquidators where profitability not required
• Documented admin fee collection mechanisms
• Alternative reward structures with analysis showing profitability
• Intentional yield/PNL handling with documented rationale
• Protocols without oracle-based pricing (no oracle manipulation risk)
• Admin-only fee setter functions (onlyOwner, onlyAdmin) with documented validation and bounds
• Governance-controlled liquidation bonus parameters with analysis showing profitability
• Admin functions for protocol fee collection where liquidator rewards are prioritized

Deliverable Format

MANDATORY: Before deliverable, verify each checklist.md item against codebase. Flag violations as findings.

Use template: templates/report-template.md

Each finding includes: severity, pattern #, file/lines, description, vulnerable code, economic impact analysis, PoC showing unprofitable liquidation or exploitation, remediation, gas impact.

Key Principles

• Decimal precision - liquidator rewards must use correct decimals to be spendable
• Priority - liquidator rewards paid first, protocol fees second
• Profitability - total fees < liquidation bonus to maintain incentive
• Completeness - minimum collateral accounts for all liquidation costs
• Fair valuation - yield/PNL included in collateral calculations
• Revenue capture - protocol charges fees on liquidation swaps
• Manipulation resistance - prevent profitable self-liquidation via oracle updates

Output Guidelines

DO:

• Reference specific lines and functions
• Provide economic analysis (fees vs rewards vs costs)
• Show PoCs demonstrating unprofitable liquidations
• Quantify reward calculation errors
• Calculate break-even points for liquidation profitability

DON'T:

• Report intentional design choices with documentation
• Flag missing features with alternative mechanisms in place
• Use vague terms ("might be unprofitable")
• Ignore gas costs and on-chain fee context