https://github.com/morpho-org/pre-liquidation
https://github.com/morpho-org/pre-liquidation
Last synced: about 2 months ago
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- Host: GitHub
- URL: https://github.com/morpho-org/pre-liquidation
- Owner: morpho-org
- License: other
- Created: 2024-08-29T16:31:15.000Z (almost 2 years ago)
- Default Branch: main
- Last Pushed: 2026-01-15T11:44:31.000Z (5 months ago)
- Last Synced: 2026-01-15T15:37:11.674Z (5 months ago)
- Language: Solidity
- Size: 4.83 MB
- Stars: 14
- Watchers: 6
- Forks: 7
- Open Issues: 2
-
Metadata Files:
- Readme: README.md
- License: LICENSE
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README
# PreLiquidation
## Overview
This repository puts together different contracts to carry out liquidations on Morpho with specific parameters chosen by the borrower.
We call these user-defined Morpho Blue transactions pre-liquidations.
Borrowers can set custom pre-liquidation parameters, allowing them to specify pre-liquidation incentive factors and pre-liquidation close factors.
Pre-liquidation incentive factors determine incentives given to liquidators and pre-liquidation close factors limit the proportion of the position that can be closed during a liquidation.
The [`PreLiquidation`](./src/PreLiquidation.sol) contract serves as the endpoint for pre-liquidations using parameters chosen by borrowers.
Note that pre-liquidation must be authorized on Morpho.
Liquidators may perform pre-liquidations on a position using the `preLiquidate` entry point on a deployed `PreLiquidation` contract.
The [`PreLiquidationFactory`](./src/PreLiquidationFactory.sol) factory contract simplifies the deployment and indexing of pre-liquidation contracts.
The set of pre-liquidation parameters is composed of
- a Morpho market (`id`);
- a pre-liquidation loan-to-value (`preLltv`);
- two pre-liquidation close factor parameters (`preLCF1` and `preLCF2`);
- two pre-liquidation incentive factor parameters (`preLIF1` and `preLIF2`);
- a pre-liquidation oracle (`preLiquidationOracle`).
### Pre-liquidation close factor and incentive factor
The pre-liquidation close factor and the pre-liquidation incentive factor evolve linearly with the user's LTV:
- the pre-liquidation close factor is `preLCF1` when the position LTV is equal to `preLltv` and `preLCF2` when the LTV is equal to `LLTV`;
- the pre-liquidation incentive factor is `preLIF1` when the position LTV equals `preLltv` and `preLIF2` when the LTV is equal to `LLTV`.
These functions are illustrated in the following figure:
The two main use-cases are:
1. Using normal fixed parameters when `preLIF1 = preLIF2` and `preLCF1 = preLCF2`.
2. Using health dependent liquidation when either `preLIF1 < preLIF2` or `preLCF1 < preLCF2`, similar to a Quasi Dutch Auction (as in [Euler liquidations](https://docs-v1.euler.finance/getting-started/white-paper#liquidations)).
### Pre-liquidation parameters restrictions
The PreLiquidation smart-contract enforces the properties:
- `preLltv < LLTV`;
- `preLCF1 <= preLCF2`;
- `preLFC1 <= 1`;
- `1 <= preLIF1 <= preLIF2 <= 1 / LLTV`.
Note: A pre-liquidation close factor higher than 100% means that the whole position is pre-liquidatable, so using `preLCF2 > 1` allows to make the position entirely pre-liquidatable at a LTV between preLltv and LLTV.
The property `preLIF2 <= 1 / LLTV` and the fact that pre-liquidations are only allowed for `LTV <= LLTV` ensure that pre-liquidations can't worsen the health of the position.
### `onPreLiquidate` callback
By calling `preLiquidate` with a smart contract that implements the `IPreLiquidationCallback` interface, the liquidator can be called back.
More precisely, the `onPreLiquidate` function of the liquidator's smart contract will be called after the collateral withdrawal and before the debt repayment.
This mechanism eliminates the need for a flashloan.
### PreLiquidation Oracle
The `PreLiquidationParams` struct includes a `preLiquidationOracle` attribute, allowing pre-liquidation using any compatible oracle.
This oracle should implement [Morpho's `IOracle` interface](https://github.com/morpho-org/morpho-blue/blob/main/src/interfaces/IOracle.sol) and adhere to the behavior specified in the documentation.
It's possible to use the corresponding market oracle or any other oracle including OEV solutions.
### PreLiquidationAddressLib
PreLiquidation contract addresses are generated using the CREATE2 opcode, allowing for predictable address computation depending on pre-liquidation parameters.
The [`PreLiquidationAddressLib`](./src/libraries/periphery/PreLiquidationAddressLib.sol) library provides a `computePreLiquidationAddress` function, simplifying the computation of a PreLiquidation contract's address.
### Potential preLCF manipulation
A pre-liquidation cannot repay a proportion of the position's debt greater than `preLCF`.
However, it's possible to pre-liquidate a proportion of the position while keeping it pre-liquidatable before performing another pre-liquidation.
This manipulation can lead to repaying a proportion of the position's debt higher than `preLCF`.
It has been studied in the part 5.2 of [An Empirical Study of DeFi Liquidations:Incentives, Risks, and Instabilities](https://arxiv.org/pdf/2106.06389), in the case of a constant liquidation close factor.
Implementing a `preLCF` linear in the health factor can help mitigating this manipulation when choosing the right slope.
## Developers
> [!NOTE]
> `PreLiquidationFactory` has been deployed on Ethereum and Base with the [metadata hash](https://docs.soliditylang.org/en/latest/metadata.html) included, which appear at two places in the bytecode as it is a factory.
### Package installation
Install [Foundry](https://book.getfoundry.sh/getting-started/installation).
### Run tests
Run `forge test`.
## Solidity version
As a consequence of using Solidity 0.8.27, the bytecode of the contracts could contain new opcodes (e.g., `PUSH0`, `MCOPY`, `TSTORE`, `TLOAD`) so one should make sure that the contract bytecode can be handled by the target chain for deployment.
## Audits
All audits are stored in the [`audits`](./audits) folder.
## License
Files in this repository are publicly available under license `GPL-2.0-or-later`, see [`LICENSE`](./LICENSE).