56846 sc medium liquidation will return because of insufficient funds

Submitted on Oct 21st 2025 at 07:22:43 UTC by @pashap9990 for Audit Comp | Alchemix V3

• Report ID: #56846

• Report Type: Smart Contract

• Report severity: Medium

• Target: https://github.com/alchemix-finance/v3-poc/blob/immunefi_audit/src/AlchemistV3.sol

• Impacts:

  • Smart contract unable to operate due to lack of token funds

Description

Finding Description and Impact

CPD holders' positions are prone to liquidation upon their CR falling below collateralizationLowerBound. Also, the earmark will be paid first, and then the liquidator will get a reward fee once the debt is gone. Nevertheless, the liquidation transaction will fail due to insufficient funds, resulting in a denial of service.

Textual PoC

Presume collateralizationLowerBound is 1.05

• User A deposits 110 MYT and mints 100 alUSD. [collateral's worth = 110, debt = 100, earmark = 0] A redemption will be initiated by Transmuter with a redeem amount of 100 alUSD, reflecting user A's status after 5,256,000 blocks. [collateral's worth = 110, debt = 100, earmark = 100]

• The price of MYT has decreased by 20%, indicating the status of user A. [collateral's worth = 91, debt = 100, earmark = 100]

• A liquidator identifies the opportunity and initiates a liquidation transaction. _forceReapy will be invoked as user A possesses an earmark, resulting in the transfer of 110 MYT to Transmuter. The liquidate function subsequently attempts to transfer 1.1 MYT to the liquidator as a reward. However, the transaction will fail due to insufficient funds.

Code Snippet

https://github.com/alchemix-finance/v3-poc/blob/a192ab313c81ba3ab621d9ca1ee000110fbdd1e9/src/AlchemistV3.sol#L826C24-L826C66

Proof of Concept

Proof of Concept

Kindly incorporate the following PoC in Alchemist.t.sol

    function testLiquidationWillRevertDueToLackOfFunds() public {
        vm.prank(alOwner);
        alchemist.setProtocolFee(protocolFee);
        
        
        vm.startPrank(someWhale);
        IMockYieldToken(mockStrategyYieldToken).mint(whaleSupply, someWhale);
        vm.stopPrank();

        
        vm.startPrank(address(0xbeef));
        SafeERC20.safeApprove(address(vault), address(alchemist), depositAmount + 100e18);
        alchemist.deposit(110e18, address(0xbeef), 0);
        // a single position nft would have been minted to 0xbeef
        uint256 tokenIdFor0xBeef = AlchemistNFTHelper.getFirstTokenId(address(0xbeef), address(alchemistNFT));
        alchemist.mint(tokenIdFor0xBeef, 99e18 , address(0xbeef));
        vm.stopPrank();


        vm.startPrank(address(0xdad));
        deal(address(alToken), address(0xdad), 99e18);
        SafeERC20.safeApprove(address(alToken), address(transmuterLogic), 99e18);
        transmuterLogic.createRedemption(99e18);
        vm.stopPrank();

        uint256 transmuterPreviousBalance = IERC20(address(vault)).balanceOf(address(transmuterLogic));
        vm.roll(block.number + 5_256_000);
        (uint collateral, uint debt, uint earmark) = alchemist.getCDP(tokenIdFor0xBeef);

        // // modify yield token price via modifying underlying token supply
        uint256 initialVaultSupply = IERC20(address(mockStrategyYieldToken)).totalSupply();
        IMockYieldToken(mockStrategyYieldToken).updateMockTokenSupply(initialVaultSupply);
        // increasing yeild token suppy by 20 bps or 20%  while keeping the unederlying supply unchanged
        uint256 modifiedVaultSupply = (initialVaultSupply * 2000 / 10_000) + initialVaultSupply;
        IMockYieldToken(mockStrategyYieldToken).updateMockTokenSupply(modifiedVaultSupply);

        uint totalValue = alchemist.totalValue(tokenIdFor0xBeef);
        vm.expectRevert();
        (uint256 assets, uint256 feeInYield, uint256 feeInUnderlying) = alchemist.liquidate(tokenIdFor0xBeef);


    }