Merge pull request #175 from morpho-org/feature/integ-274-handle-bad-…

…debt-events Feature/integ 274 handle bad debt events
morpho-org · Dec 2, 2024 · 9f272df · 9f272df
2 parents b930a74 + f647328
commit 9f272df
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diff --git a/packages/liquidation-sdk-viem/examples/whitelisted-erc4626-1inch.ts b/packages/liquidation-sdk-viem/examples/whitelisted-erc4626-1inch.ts
@@ -135,8 +135,11 @@ export const check = async <
             .map((_v, i) => seizableCollateral / 2n ** BigInt(i))
             .filter(
               (seizedAssets) =>
-                collateralToken.toUsd(seizedAssets)! > parseEther("1000"), // Do not try seizing less than $1000 collateral.
-            )
+                collateralToken.toUsd(seizedAssets)! > parseEther("1000") ||
+                (accrualPosition.collateral === seizedAssets &&
+                  loanToken.toUsd(accrualPosition.borrowAssets)! >
+                    parseEther("1000")),
+            ) // Do not try seizing less than $1000 collateral, except if we can realize more than $1000 bad debt.
             .map(async (seizedAssets) => {
               const repaidShares =
                 market.getLiquidationRepaidShares(seizedAssets)!;

diff --git a/packages/liquidation-sdk-viem/test/examples/whitelisted-erc4626-1inch.test.ts b/packages/liquidation-sdk-viem/test/examples/whitelisted-erc4626-1inch.test.ts
@@ -8,7 +8,12 @@ import {
   type MarketId,
   addresses,
 } from "@morpho-org/blue-sdk";
-import { BLUE_API_BASE_URL, ZERO_ADDRESS, format } from "@morpho-org/morpho-ts";
+import {
+  BLUE_API_BASE_URL,
+  Time,
+  ZERO_ADDRESS,
+  format,
+} from "@morpho-org/morpho-ts";
 import type { BuildTxInput } from "@paraswap/sdk";
 
 import {
@@ -25,7 +30,13 @@ import {
   mainnetAddresses,
 } from "@morpho-org/liquidation-sdk-viem";
 import { type AnvilTestClient, testAccount } from "@morpho-org/test";
-import { encodeFunctionData, erc20Abi, maxUint256, parseUnits } from "viem";
+import {
+  encodeFunctionData,
+  erc20Abi,
+  maxUint256,
+  parseEther,
+  parseUnits,
+} from "viem";
 import type { mainnet } from "viem/chains";
 import { afterEach, beforeEach, describe, expect, vi } from "vitest";
 import { check } from "../../examples/whitelisted-erc4626-1inch.js";
@@ -54,6 +65,7 @@ const pendleRedeemApiMatcher = new RegExp(`${Pendle.getRedeemApiUrl(1)}.*`);
 const { morpho } = addresses[ChainId.EthMainnet];
 
 const borrower = testAccount(1);
+const liquidator = testAccount(2);
 
 describe("erc4626-1inch", () => {
   let swapMockAddress: Address;
@@ -719,6 +731,189 @@ describe("erc4626-1inch", () => {
     },
   );
 
+  // Cannot run concurrently because `fetch` is mocked globally.
+  test.sequential(
+    `should liquidate on standard market with bad debt but low collateral amount`,
+    async ({ client, encoder }) => {
+      const collateralPriceUsd = 3_129;
+      const ethPriceUsd = 2_653;
+
+      const marketId =
+        "0xb8fc70e82bc5bb53e773626fcc6a23f7eefa036918d7ef216ecfb1950a94a85e" as MarketId; // wstETH/WETH (96.5%)
+
+      const market = await fetchMarket(marketId, client);
+      const [collateralToken, loanToken] = await Promise.all([
+        fetchToken(market.params.collateralToken, client),
+        fetchToken(market.params.loanToken, client),
+      ]);
+
+      const collateral = parseUnits("10000", collateralToken.decimals);
+      await client.deal({
+        erc20: collateralToken.address,
+        account: borrower.address,
+        amount: collateral,
+      });
+      await client.approve({
+        account: borrower,
+        address: collateralToken.address,
+        args: [morpho, maxUint256],
+      });
+      await client.writeContract({
+        account: borrower,
+        address: morpho,
+        abi: blueAbi,
+        functionName: "supplyCollateral",
+        args: [market.params, collateral, borrower.address, "0x"],
+      });
+
+      const borrowed = market.getMaxBorrowAssets(collateral)! - 1n;
+      await client.deal({
+        erc20: loanToken.address,
+        account: borrower.address,
+        amount: borrowed - market.liquidity,
+      });
+      await client.approve({
+        account: borrower,
+        address: loanToken.address,
+        args: [morpho, maxUint256],
+      });
+      await client.writeContract({
+        account: borrower,
+        address: morpho,
+        abi: blueAbi,
+        functionName: "supply",
+        args: [
+          market.params,
+          borrowed - market.liquidity, // 100% utilization after borrow.
+          0n,
+          borrower.address,
+          "0x",
+        ],
+      });
+
+      await client.writeContract({
+        account: borrower,
+        address: morpho,
+        abi: blueAbi,
+        functionName: "borrow",
+        args: [
+          market.params as Pick<
+            typeof market.params,
+            "collateralToken" | "loanToken" | "oracle" | "irm" | "lltv"
+          >,
+          borrowed,
+          0n,
+          borrower.address,
+          borrower.address,
+        ],
+      });
+
+      await client.setNextBlockTimestamp({
+        timestamp: (await client.timestamp()) + Time.s.from.y(1n),
+      });
+
+      nock(BLUE_API_BASE_URL)
+        .post("/graphql")
+        .reply(200, { data: { markets: { items: [{ uniqueKey: marketId }] } } })
+        .post("/graphql")
+        .reply(200, {
+          data: {
+            assetByAddress: {
+              priceUsd: ethPriceUsd,
+              spotPriceEth: 1,
+            },
+            marketPositions: {
+              items: [
+                {
+                  user: {
+                    address: borrower.address,
+                  },
+                  market: {
+                    uniqueKey: marketId,
+                    collateralAsset: {
+                      address: market.params.collateralToken,
+                      decimals: collateralToken.decimals,
+                      priceUsd: collateralPriceUsd,
+                    },
+                    loanAsset: {
+                      address: market.params.loanToken,
+                      decimals: loanToken.decimals,
+                      priceUsd: ethPriceUsd,
+                      spotPriceEth: 1 / ethPriceUsd,
+                    },
+                  },
+                },
+              ],
+            },
+          },
+        });
+
+      await client.deal({
+        erc20: loanToken.address,
+        account: liquidator.address,
+        amount: maxUint256,
+      });
+      await client.approve({
+        account: liquidator,
+        address: loanToken.address,
+        args: [morpho, maxUint256],
+      });
+      await client.writeContract({
+        account: liquidator,
+        address: morpho,
+        abi: blueAbi,
+        functionName: "liquidate",
+        args: [
+          market.params,
+          borrower.address,
+          collateral - parseEther("0.01"),
+          0n,
+          "0x",
+        ],
+      });
+
+      await syncTimestamp(client, await client.timestamp());
+
+      const postLiquidationAccrualPosition = await fetchAccrualPosition(
+        borrower.address as Address,
+        marketId,
+        client,
+      );
+
+      const collateralValue =
+        (collateralPriceUsd *
+          Number(postLiquidationAccrualPosition.collateral)) /
+        10 ** collateralToken.decimals;
+      const loanValue =
+        (ethPriceUsd * Number(postLiquidationAccrualPosition.borrowAssets)) /
+        10 ** loanToken.decimals;
+
+      expect(loanValue).toBeGreaterThan(1000);
+      expect(collateralValue).toBeLessThan(1000);
+
+      mockOneInch(encoder, [
+        {
+          srcAmount: parseEther("0.01"),
+          dstAmount: "14035289781000635",
+        },
+      ]);
+      mockParaSwap(encoder, [
+        { srcAmount: parseEther("0.01"), dstAmount: "14035289781000635" },
+      ]);
+
+      await check(encoder.address, client, client.account, [marketId]);
+
+      const finalAccrualPosition = await fetchAccrualPosition(
+        borrower.address as Address,
+        marketId,
+        client,
+      );
+
+      expect(finalAccrualPosition.borrowShares).toEqual(0n);
+      expect(finalAccrualPosition.collateral).toEqual(0n);
+    },
+  );
+
   // Cannot run concurrently because `fetch` is mocked globally.
   test.sequential(
     `should liquidate on a PT standard market before maturity`,