lending

name	lending
description	Auto-loaded by defi-auditor agent during Phase 2 when analyzing lending protocols. Provides patterns for: liquidation logic, interest rate models, collateral management, health factor calculations, bad debt handling. Core vulnerabilities: self-liquidation, precision loss, oracle manipulation, collateral factor attacks.
user-invocable	false

Lending Protocol Patterns

This skill provides comprehensive knowledge for auditing DeFi lending protocols.

Core Lending Concepts

Concept	Description
Collateral Factor	Max borrow % against collateral
Liquidation Threshold	Health level triggering liquidation
Utilization Rate	Borrowed / Total Supplied
Interest Rate	Function of utilization
Health Factor	Collateral value / Debt value

---

Why Lending Protocol Attacks Happen (Root Causes)

Root Cause 1: Health Factor Calculation Timing

The fundamental vulnerability: health factors computed from stale or cached data instead of real-time prices.

// VULNERABLE: Cached health factor
mapping(address => uint256) public healthFactors;

function liquidate(address user) external {
    // Uses stale cached value
    require(healthFactors[user] < 1e18);
    // Actual health factor may be different!
}

// SECURE: Compute in real-time
function liquidate(address user) external {
    uint256 collateralValue = getCollateralValue(user);  // Real-time oracle
    uint256 debtValue = getDebtValue(user);
    uint256 healthFactor = collateralValue * 1e18 / debtValue;
    require(healthFactor < 1e18);
}

Attacker's view: "The protocol checks a stale health factor. I can manipulate prices between the check and liquidation, or liquidate users who are actually safe."

Root Cause 2: Liquidation Incentive Misconfiguration

Liquidation bonus set higher than the safety margin, making self-liquidation profitable.

// VULNERABLE: Bonus exceeds safety margin
uint256 constant MAX_LTV = 80e16;           // 80%
uint256 constant LIQUIDATION_BONUS = 15e16; // 15%

// Attacker borrows at 80% LTV, self-liquidates with 15% bonus
// Net profit: 15% - (100% - 80%) = -5%... wait, this is a loss
// But if bonus > (100% - LTV), it's profitable!

uint256 constant LIQUIDATION_BONUS = 25e16; // 25% (DANGEROUS!)
// Profit: 25% - 20% = 5% free money

Attacker's view: "I borrow at max LTV, wait for any price movement, then self-liquidate and pocket the bonus."

Root Cause 3: Interest Precision Loss

Small amounts round to zero during interest accrual, allowing dust attacks or precision exploits.

// VULNERABLE: Interest rounds to 0
uint256 interest = principal * rate / SECONDS_PER_YEAR;
// If principal * rate < SECONDS_PER_YEAR, interest = 0

// Example: principal = 100 wei, rate = 1e16 (1%)
// interest = 100 * 1e16 / 31536000 = 0 (rounds down)

// SECURE: Use high-precision accumulator
uint256 interestAccumulator; // Ray (1e27) precision
uint256 newAccumulator = oldAccumulator + (rate * 1e27 / SECONDS_PER_YEAR);

Attacker's view: "I can deposit tiny amounts that accrue zero interest, or exploit rounding to avoid paying interest on small borrows."

Root Cause 4: Collateral Valuation Trust

Collateral value depends entirely on oracle accuracy. Stale, manipulated, or incorrect oracles break the entire protocol.

// VULNERABLE: Single oracle, no staleness check
function getCollateralValue(address user) public view returns (uint256) {
    uint256 price = oracle.getPrice(collateralToken);  // Could be stale!
    return userBalance * price / 1e18;
}

// SECURE: Validate oracle freshness
function getCollateralValue(address user) public view returns (uint256) {
    (uint256 price, uint256 timestamp) = oracle.getPriceWithTimestamp(collateralToken);
    require(block.timestamp - timestamp <= MAX_STALENESS);
    return userBalance * price / 1e18;
}

Attacker's view: "If I can manipulate the oracle or use a stale price, I can inflate collateral value and borrow more than safe."

Root Cause 5: Bad Debt Socialization Gap

When liquidation fails to recover full debt, bad debt accumulates and is socialized across remaining suppliers, creating insolvency.

// VULNERABLE: No bad debt handling
function liquidate(address user) external {
    uint256 collateralValue = getCollateralValue(user);
    uint256 debtValue = getDebtValue(user);
    
    // If collateral < debt, bad debt remains!
    // Suppliers lose money
}

// SECURE: Handle underwater positions
function liquidate(address user) external {
    uint256 collateralValue = getCollateralValue(user);
    uint256 debtValue = getDebtValue(user);
    
    if (collateralValue < debtValue) {
        uint256 badDebt = debtValue - collateralValue;
        // Socialize or use insurance fund
        insuranceFund -= min(badDebt, insuranceFund);
    }
}

Attacker's view: "If I can create a position where collateral < debt, the protocol becomes insolvent and I profit from the socialized loss."

---

Liquidation Vulnerabilities

1. Profitable Self-Liquidation

Root Cause: Root Cause 2 (Liquidation Incentive Misconfiguration)

Vulnerable Pattern:

// DANGEROUS: Liquidator bonus too high
uint256 constant LIQUIDATION_BONUS = 15e16; // 15%

function liquidate(address user, uint256 repayAmount) external {
    // Attacker can:
    // 1. Borrow at 80% LTV
    // 2. Wait for tiny price drop
    // 3. Self-liquidate with 15% bonus
    // = Free 15% - (100% - 80%) = Net profit!
}

Check: Liquidation bonus should be less than (100% - Max LTV).

2. Liquidation Cascade

// When one liquidation triggers another
// Large position liquidated → price drops → more liquidations

// Mitigations:
// - Gradual liquidation (partial)
// - Circuit breakers
// - Liquidation delays

3. Bad Debt Accumulation

Root Cause: Root Cause 5 (Bad Debt Socialization Gap)

Vulnerable Pattern:

// DANGEROUS: No bad debt handling
function liquidate(address user) external {
    // If collateral < debt after liquidation
    // Bad debt remains in protocol
    // Eventually becomes insolvent
}

// SECURE: Handle underwater positions
function liquidate(address user) external {
    uint256 collateralValue = getCollateralValue(user);
    uint256 debtValue = getDebtValue(user);

    if (collateralValue < debtValue) {
        // Socialize bad debt or use insurance fund
        uint256 badDebt = debtValue - collateralValue;
        insuranceFund -= min(badDebt, insuranceFund);
    }
}

---

Interest Rate Model

Standard Jump Rate Model

contract JumpRateModel {
    uint256 public baseRate;      // Rate at 0% utilization
    uint256 public multiplier;    // Rate increase per utilization
    uint256 public jumpMultiplier; // Rate increase above kink
    uint256 public kink;          // Utilization % where jump occurs

    function getBorrowRate(uint256 cash, uint256 borrows)
        public view returns (uint256)
    {
        uint256 utilization = borrows * 1e18 / (cash + borrows);

        if (utilization <= kink) {
            return baseRate + utilization * multiplier / 1e18;
        } else {
            uint256 normalRate = baseRate + kink * multiplier / 1e18;
            uint256 excessUtil = utilization - kink;
            return normalRate + excessUtil * jumpMultiplier / 1e18;
        }
    }
}

Interest Rate Vulnerabilities

1. Rate Manipulation

// Attacker can manipulate utilization
// 1. Flash loan large amount
// 2. Deposit → lower utilization → lower rates
// 3. Borrow at low rate
// 4. Withdraw and repay flash loan

2. Precision Loss

Root Cause: Root Cause 3 (Interest Precision Loss)

// DANGEROUS: Interest rounds to 0 for small amounts
uint256 interest = principal * rate / SECONDS_PER_YEAR;
// If principal * rate < SECONDS_PER_YEAR, interest = 0

// SOLUTION: Accumulate interest with high precision
uint256 interestAccumulator; // Ray (1e27) precision

---

Collateral Vulnerabilities

1. Collateral Factor Changes

// DANGEROUS: Instant collateral factor reduction
function setCollateralFactor(address token, uint256 newFactor) external {
    collateralFactors[token] = newFactor;
    // Existing borrowers may become instantly liquidatable!
}

// SECURE: Grace period or gradual reduction
function setCollateralFactor(address token, uint256 newFactor) external {
    require(newFactor >= collateralFactors[token] - MAX_DECREASE);
    pendingFactors[token] = newFactor;
    factorEffectiveTime[token] = block.timestamp + TIMELOCK;
}

2. Collateral Oracle Manipulation

Root Cause: Root Cause 4 (Collateral Valuation Trust)

// Collateral valued using manipulable oracle
// Attacker inflates collateral value → borrows more → profits
// See oracle vulnerability patterns

3. Toxic Collateral

// Collateral that can't be liquidated:
// - Pausable tokens
// - Blacklistable tokens
// - Low liquidity tokens

// Mitigation: Whitelist collateral carefully

---

Borrowing Vulnerabilities

1. Borrow Cap Bypass

// VULNERABLE: Cap checked only on new borrows
function borrow(uint256 amount) external {
    require(totalBorrowed + amount <= borrowCap);
    // Interest accrual can push over cap!
}

// Check on any state-changing operation

2. Same-Block Borrow-Repay

// EXPLOIT: Borrow and repay in same block
// No interest accrued = free leverage

function borrow(uint256 amount) external {
    require(lastBorrowBlock[msg.sender] < block.number);
    lastBorrowBlock[msg.sender] = block.number;
    // ...
}

---

Health Factor Calculations

Standard Formula

Health Factor = (Collateral Value × LTV) / Debt Value

Health Factor > 1: Safe
Health Factor < 1: Liquidatable

Vulnerabilities

1. Stale Health Factor

Root Cause: Root Cause 1 (Health Factor Calculation Timing)

// DANGEROUS: Cached health factor
mapping(address => uint256) public healthFactors;

// Health factors become stale as prices change
// Always compute in real-time

2. Rounding Direction

// SECURE: Round health factor DOWN (safer)
uint256 healthFactor = collateralValue * 1e18 / debtValue;

// Round debt UP when calculating
uint256 debt = (borrowed * (1e18 + interest) + 1e18 - 1) / 1e18;

---

Common AAVE/Compound Patterns

Reserve Factor

// Protocol takes cut of interest
uint256 interestToProtocol = interest * reserveFactor / 1e18;
uint256 interestToSuppliers = interest - interestToProtocol;

Supply Index

// Track earnings per token
// supplyIndex increases as interest accrues
uint256 newIndex = oldIndex + (interest * 1e18 / totalSupply);

// User earnings = balance * (currentIndex - userIndex) / 1e18

---

Lending Audit Checklist

Liquidation

• Liquidation bonus < (100% - max LTV)
• Bad debt handling exists
• Partial liquidation supported
• Liquidation can't be blocked (pausable tokens)
• Self-liquidation not profitable

Interest

• Interest accrues correctly over time
• No precision loss on small amounts
• Rate manipulation resistance
• Compound interest handled

Collateral

• Oracle is manipulation-resistant
• Collateral factor changes have timelock
• Collateral whitelist is reasonable
• Handles rebasing/weird tokens properly

Health Factor

• Computed in real-time
• Rounding favors protocol safety
• Handles all edge cases (0 debt, 0 collateral)

Access Control

• Only authorized can change parameters
• Emergency pause exists
• Parameter bounds enforced

Severity Classification

Critical

• Self-liquidation profitable
• Bad debt not handled
• Oracle manipulation allows draining

High

• Interest precision loss
• Collateral factor instant changes
• Same-block manipulation

Medium

• Missing borrow caps
• Liquidation can be blocked
• Rate model edge cases

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Rationalization Table

Root Cause	Historical Exploit	Detection Method	Severity	Mitigation
Health Factor Calculation Timing	Stale price liquidations (Aave v1 oracle failures)	Check if health factor computed real-time from oracle	Critical	Always compute health factor in real-time, validate oracle freshness
Liquidation Incentive Misconfiguration	Self-liquidation profit (Compound liquidation bonus > safety margin)	Verify: bonus < (100% - max LTV)	Critical	Set liquidation bonus ≤ (100% - max LTV), audit parameter changes
Interest Precision Loss	Dust attack exploits (small amounts accrue zero interest)	Check interest calculation for rounding to zero	High	Use high-precision accumulators (ray/wad), test with small amounts
Collateral Valuation Trust	Oracle manipulation attacks (Euler oracle dependency)	Audit oracle source, check staleness, validate multi-source	Critical	Use manipulation-resistant oracles, implement staleness checks, multi-oracle fallback
Bad Debt Socialization Gap	Protocol insolvency (Euler bad debt cascade)	Check if collateral < debt is handled	Critical	Implement bad debt handling, insurance fund, or liquidation guarantees