The liquidation payout could be considered unfair for lenders with higher LTV.
Summary
The liquidation payout could be considered unfair for lenders with higher LTV.
Vulnerability Detail
Kairos distributes interests to lenders in proportion to the amount lent, while liquidation rewards are distributed based on the share provision, presumably to handle borrower claims.
However, this approach can lead to interesting scenarios between lenders' and incentivizes lenders to offer lower loan-to-value (LTV) than their peers.
This is because they can take less risk but still receive an equal share in the liquidation payout.
Consider Lender A offers an LTV of 20, while Lender B offers an LTV of 10.
The borrower borrows 10 from A and 5 from B, resulting in a matched = ONE.
If the position is liquidated for 15, both A and B would be rewarded with 7.5.
This approach can be seen as unfair to A, who took considerably more risk and suffered a greater loss (-2.5) compared to B, who gained 2.5 in the end. Therefore, it may be worth considering alternative methods for distributing liquidation rewards that take into account the lenders' risks.
Impact
Liquidation payout is distributed unfairly between lenders.
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The liquidation payout could be considered unfair for lenders with higher LTV.
Summary
The liquidation payout could be considered unfair for lenders with higher LTV.
Vulnerability Detail
Kairos distributes interests to lenders in proportion to the amount lent, while liquidation rewards are distributed based on the share provision, presumably to handle borrower claims. However, this approach can lead to interesting scenarios between lenders' and incentivizes lenders to offer lower loan-to-value (LTV) than their peers. This is because they can take less risk but still receive an equal share in the liquidation payout.
Consider Lender A offers an LTV of 20, while Lender B offers an LTV of 10. The borrower borrows 10 from A and 5 from B, resulting in a matched = ONE. If the position is liquidated for 15, both A and B would be rewarded with 7.5.
This approach can be seen as unfair to A, who took considerably more risk and suffered a greater loss (-2.5) compared to B, who gained 2.5 in the end. Therefore, it may be worth considering alternative methods for distributing liquidation rewards that take into account the lenders' risks.
Impact
Liquidation payout is distributed unfairly between lenders.
Code Snippet
https://github.com/sherlock-audit/2023-02-kairos/blob/main/kairos-contracts/src/ClaimFacet.sol#L117
Tool used
Manual Review
Recommendation
Consider alternative methods for distributing liquidation rewards that take into account the lenders' risks.