# L2 sequencer down will push an auction's price down, causing unfair liquidation prices, and potentially guaranteeing bad debt

Arcadia's liquidation auction price curve ignores L2 sequencer downtime, so auctions keep decaying during outages and liquidators repay less than full debt, leaving bad debt.

- Payout: Contest reward
- Severity: medium
- Program: Arcadia
- Credited: PUSH0
- Disclosed: 2023-12-17
- Write-up quality: 7/10
- Original: https://github.com/sherlock-audit/2023-12-arcadia-judging/issues/60
- Library page: https://bugbountylibrary.com/r/sherlock%3A2023-12-arcadia%3AM-3
- Tags: domain:web3 impact:funds-loss impact:integrity kind:contest platform:sherlock sev:medium tech:evm technique:source-review vuln:business-logic vuln:liquidation vuln:oracle-manipulation

**Target:** Lending protocol Liquidator auction price curve on Arbitrum L2
**Root cause:** The oracle has sequencer uptime checks but the Liquidator's auction price decay function does not, so the multiplier keeps decaying while the sequencer is down and liquidations are blocked.
**Steps:**
1. Bob's account becomes liquidatable; liquidation start is triggered, starting multiplier 150%, final 60%, half-life 1h.
2. Wait 30 min: price = 60% + 90%*0.5^0.5 = 123.63% of debt for 100% collateral, not yet profitable.
3. Sequencer goes down for 1 hour (grace period excluded); auction decay continues.
4. Sequencer recovers after 1.5 half-lives: price = 60% + 90%*0.5^1.5 = 91.82%.
5. Liquidator repays only 91.82% of Bob's debt and seizes all collateral; Bob left with 0 collateral and 8.18% debt -> bad debt.
6. With 2h outage+grace: repaid = 60% + 90%*0.5^2.5 = 75.91%.
**How found:** Code reading: noticed the Registry/oracle enforces sequencer uptime checks but the Liquidator's price curve calculation lacks the same check, then modeled decay math against default constructor parameters.
**Exploitation:** Attacker waits for a sequencer outage while an auction is live, then after recovery buys all collateral at the decayed multiplier below 100% of debt, repaying less than owed and leaving the protocol with bad debt.
**Escalation:** Longer downtime plus grace period pushes the repaid percentage arbitrarily low, guaranteeing protocol bad debt.
**Insight:** When a protocol gates actions on oracle sequencer-uptime checks, audit every other time-dependent state machine (auction decay, vesting, funding accrual) for the same missing gate; a paused action does not pause its clock.