# Fixed reward percentage for liquidators in the eUSD vault may cause a liquidation crisis

Fixed 10% liquidator reward in Lybra eUSD vault makes positions with 101-109% collateral ratio unhealthier after each liquidation, cascading toward bad debt.

- Payout: Contest reward
- Severity: medium
- Program: Lybra Finance
- Credited: 0xRobocop
- Disclosed: 2023-08-21
- Write-up quality: 6/10
- Original: https://github.com/code-423n4/2023-06-lybra-findings/issues/72
- Library page: https://bugbountylibrary.com/r/c4%3A2023-06-lybra%3AM-20
- Tags: domain:web3 impact:funds-loss kind:contest platform:code4rena sev:medium tech:solidity technique:source-review vuln:accounting-error vuln:liquidation

**Target:** LybraEUSDVaultBase / LybraPEUSDVaultBase liquidation function
**Root cause:** Liquidation pays a fixed 10% bonus on seized collateral regardless of position health; when CR is below ~110%, the bonus exceeds the collateral freed relative to debt reduction, so CR drops after liquidation.
**Steps:**
1. Set USD/ETH=1500, collateral=2 ETH, debt=2779 eUSD -> CR=107.9%
2. Liquidator calls `liquidation` seizing max 50% (1 ETH) plus 10% bonus (0.1 ETH)
3. New CR = ((2-1.1)*1500)/(2779-1500) = 105.5%
4. Repeat liquidation; CR keeps falling until liquidator no longer profitable, leaving bad debt
**How found:** Manual review of liquidation math; noticed fixed reward percentage and computed post-liquidation CR for a low-CR position, observing it decreased rather than increased.
**Exploitation:** Liquidator repeatedly liquidates a position in the 101-109% CR band, each round extracting the 10% bonus while lowering the position's collateral ratio, accelerating insolvency and bad debt accumulation.
**Escalation:** Cascading liquidations: each liquidation worsens CR, enabling further liquidations until position is underwater.
**Insight:** When auditing CDP liquidation logic, compute post-liquidation collateral ratio as a function of pre-liquidation CR and the fixed bonus; a constant bonus can be net-negative for CR below 1/(1-bonus) thresholds.