58616 sc medium liquidation can revert due to 0 amount fee withdraw

Submitted on Nov 3rd 2025 at 15:53:38 UTC by @JoeMama for Audit Comp | Alchemix V3

• Report ID: #58616

• Report Type: Smart Contract

• Report severity: Medium

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

• Impacts:

  • Contract fails to deliver promised returns, but doesn't lose value

Description

Brief/Intro

During liquidation, it first attempts to use the user’s earmark to repay as much debt as possible.

There is a problem when the earmark is close to the debt, it does not wipe out the debt completely and leave a small debt.

Now, the outsourcedFee (calculated from the remaining debt) can become extremely small.

If the underlyingConversionFactor is larger than the outsourcedFee, the normalized value in normalizeDebtTokensToUnderlying(outsourcedFee) may round down to zero (e.g., 5e11 / 1e12 = 0).

This results in the fee vault’s withdraw to revert, since it fails the _checkNonZeroAmount validation that prevents 0 withdrawals.

    function withdraw(address recipient, uint256 amount) external override onlyAuthorized {
        _checkNonZeroAddress(recipient);
        _checkNonZeroAmount(amount);

Vulnerability Details

The root cause of the issue is that the withdraw on the fee vault reverts if the amount is 0, this is caused by liquidating a low debt, because the outsource fee which is based on a percentage of the new debt, which will be divided by the underlyingConversionFactor,

        if (outsourcedFee > 0) { 
            uint256 vaultBalance = IFeeVault(alchemistFeeVault).totalDeposits();
            if (vaultBalance > 0) {
              
                uint256 feeBonus = normalizeDebtTokensToUnderlying(outsourcedFee); 
             
                feeInUnderlying = vaultBalance > feeBonus ? feeBonus : vaultBalance;
                IFeeVault(alchemistFeeVault).withdraw(msg.sender, feeInUnderlying);  // this returned 0. 
            }
        }

A low debt could be created when the earmark is removed during forced repayment, so if a user has a large amount of debt before, this could become dust debt. It can also happen when minting a lot of small debts

Impact Details

This issue can temporarily cause liquidations to fail when a user’s remaining debt is very small.

It can occur naturally, but a user could also intentionally create tiny debts to avoid liquidation.

Remediation

Consider changing the check from:

 if (outsourcedFee > 0) { 

to:

 if (normalizeDebtTokensToUnderlying(outsourcedFee) > 0) { 

Link to Proof of Concept

https://gist.github.com/hexens-joe/dce396b3a6473beac2b8c0e6e45785b3

Proof of Concept

Proof of Concept

1. Alice her current output for getCDP are as follow:

"collateral", 13000000000000000 
"debt", 11700000000000000
"earmark", 11682913738657214

1. Someone calls liquidate on Alice,

the earmark removes 11682913738657214 [1.168e16] debt. leaving alice with dust debt: 17086261342786 [1.708e13])

this will return a outsource fee of:

17086261342786 *feeBps/BPS = 512587840283 [5.125e11])

For a 6 decimal vault with a underlyingConversionFactor of 1e12 the fee bonus will be normalizeDebtTokensToUnderlying(5.125e11) = 0 causing the withdraw to revert with ZeroAmount() error.

PoC:

Please run the gist with: forge test --mt testLiquidateReverts -vv

function testLiquidateReverts() external {

        address user1 = makeAddr("user1");
        address user2 = makeAddr("user2");

        deal(address(vault), address(user1), 10e18);

        vm.startPrank(address(user1));
        SafeERC20.safeApprove(address(vault), address(alchemist), type(uint256).max);
        alchemist.deposit(10e18, address(user1), 0); 
        vm.stopPrank();


        uint256 tokenId = AlchemistNFTHelper.getFirstTokenId(address(user1), address(alchemistNFT));

        vm.prank(user1);
        alchemist.mint(tokenId, 9e18, user1);

        vm.startPrank(user1);

        IERC20(alToken).approve(address(transmuterLogic), 3000e18);
        IERC20(address(vault)).approve(address(alchemist), 100_000e18);
        transmuterLogic.createRedemption(9e18 - 100);

        vm.roll(vm.getBlockNumber() + transmuterLogic.timeToTransmute()); // full dulration of the redemption.

        IERC20(address(vault)).approve(address(alchemist), 100_000e18);
       
        // modify yield token price via modifying underlying token supply
        uint256 initialVaultSupply = IERC20(address(mockStrategyYieldToken)).totalSupply();
        IMockYieldToken(mockStrategyYieldToken).updateMockTokenSupply(initialVaultSupply);
        // increasing yeild token suppy by 2000 bps or 0% while keeping the unederlying supply unchanged
        uint256 modifiedVaultSupply = ((initialVaultSupply * 2000) / 10_000) + initialVaultSupply;
        IMockYieldToken(mockStrategyYieldToken).updateMockTokenSupply(modifiedVaultSupply);

        vm.startPrank(user1);
        vm.expectRevert("ZeroAmount()");
        alchemist.liquidate(tokenId);

    }