From 273efb448b1acf6758c33d5b76b45e116ed2022f Mon Sep 17 00:00:00 2001
From: Adam Moser <63419657+toteki@users.noreply.github.com>
Date: Tue, 17 Oct 2023 10:02:59 -0600
Subject: [PATCH] fix leveraged liquidate not working during low liquidity
 (#2285)

* fix leveraged liquidate not working during low liquidity

* cl

* empty commit

* empty commit

* ++

* fix govulncheck flow name

* ++

---------

Co-authored-by: Robert Zaremba <robert@zaremba.ch>
---
 .github/workflows/govulncheck.yml   |  2 +-
 CHANGELOG.md                        |  1 +
 x/leverage/keeper/liquidate.go      | 16 +++++++++++-----
 x/leverage/keeper/liquidate_test.go |  9 +++++++++
 4 files changed, 22 insertions(+), 6 deletions(-)

diff --git a/.github/workflows/govulncheck.yml b/.github/workflows/govulncheck.yml
index 9b7a20d157..da3799250f 100644
--- a/.github/workflows/govulncheck.yml
+++ b/.github/workflows/govulncheck.yml
@@ -1,4 +1,4 @@
-name: Tests
+name: Vuln
 on:
   pull_request:
     types: [opened, synchronize, reopened, labeled]
diff --git a/CHANGELOG.md b/CHANGELOG.md
index 558b05d5a2..f8ecf401a8 100644
--- a/CHANGELOG.md
+++ b/CHANGELOG.md
@@ -75,6 +75,7 @@ Ref: https://keepachangelog.com/en/1.0.0/
 - [2267](https://github.com/umee-network/umee/pull/2267) Leverage transactions accept spot prices up to 3 minutes old, and leverage queries use most recent spot price when required.
 - [2263](https://github.com/umee-network/umee/pull/2263) Add spot price fields to account summary.
 - [2270](https://github.com/umee-network/umee/pull/2270) Increase free oracle tx limit to 200k gas.
+- [2285](https://github.com/umee-network/umee/pull/2285) Leveraged liquidate works during low liquidity.
 
 ### Features
 
diff --git a/x/leverage/keeper/liquidate.go b/x/leverage/keeper/liquidate.go
index 3e48b68283..bcb7f0ae65 100644
--- a/x/leverage/keeper/liquidate.go
+++ b/x/leverage/keeper/liquidate.go
@@ -108,6 +108,7 @@ func (k Keeper) getLiquidationAmounts(
 		priceRatio,
 		exchangeRate,
 		liqudationIncentive,
+		leveragedLiquidate,
 	)
 
 	return sdk.NewCoin(repayDenom, repay), sdk.NewCoin(collateralDenom, burn), sdk.NewCoin(rewardDenom, reward), nil
@@ -123,6 +124,7 @@ func (k Keeper) getLiquidationAmounts(
 // - priceRatio: The ratio of repayPrice / rewardPrice, which is used when computing rewards
 // - uTokenExchangeRate: The uToken exchange rate from collateral uToken denom to reward base denom
 // - liquidationIncentive: The liquidation incentive of the token reward denomination
+// - leverageLiquidate: whether liquidation is leveraged (in which case it can disregard availableReward)
 func ComputeLiquidation(
 	availableRepay,
 	availableCollateral,
@@ -130,6 +132,7 @@ func ComputeLiquidation(
 	priceRatio,
 	uTokenExchangeRate,
 	liquidationIncentive sdk.Dec,
+	leverageLiquidate bool,
 ) (tokenRepay sdkmath.Int, collateralBurn sdkmath.Int, tokenReward sdkmath.Int) {
 	// Prevent division by zero
 	if uTokenExchangeRate.IsZero() || priceRatio.IsZero() {
@@ -157,12 +160,15 @@ func ComputeLiquidation(
 	ratio = sdk.MinDec(ratio,
 		toDec(availableCollateral).Quo(maxCollateral),
 	)
-	// Base token reward cannot exceed available unreserved module balance
-	ratio = sdk.MinDec(ratio,
-		toDec(availableReward).Quo(maxReward),
-	)
+	if !leverageLiquidate {
+		// Base token reward cannot exceed available unreserved module balance
+		ratio = sdk.MinDec(ratio,
+			toDec(availableReward).Quo(maxReward),
+		)
+	}
+
 	// Catch edge cases
-	if !ratio.IsPositive() {
+	if !ratio.IsPositive() || ratio.GT(sdk.OneDec()) {
 		return sdk.ZeroInt(), sdk.ZeroInt(), sdk.ZeroInt()
 	}
 
diff --git a/x/leverage/keeper/liquidate_test.go b/x/leverage/keeper/liquidate_test.go
index ca98c19a63..999384391e 100644
--- a/x/leverage/keeper/liquidate_test.go
+++ b/x/leverage/keeper/liquidate_test.go
@@ -19,6 +19,7 @@ func TestComputeLiquidation(t *testing.T) {
 		rewardTokenPrice     sdk.Dec
 		uTokenExchangeRate   sdk.Dec
 		liquidationIncentive sdk.Dec
+		leveragedLiquidate   bool
 	}
 
 	baseCase := func() testCase {
@@ -30,6 +31,7 @@ func TestComputeLiquidation(t *testing.T) {
 			sdk.OneDec(),                 // price(B) = $1
 			sdk.OneDec(),                 // utoken exchange rate 1 u/B => 1 B
 			sdk.MustNewDecFromStr("0.1"), // reward value is 110% repay value
+			false,
 		}
 	}
 
@@ -42,6 +44,7 @@ func TestComputeLiquidation(t *testing.T) {
 			priceRatio,
 			tc.uTokenExchangeRate,
 			tc.liquidationIncentive,
+			tc.leveragedLiquidate,
 		)
 
 		assert.Equal(t, true, sdkmath.NewInt(expectedRepay).Equal(repay),
@@ -74,6 +77,12 @@ func TestComputeLiquidation(t *testing.T) {
 	rewardLimited.availableReward = sdk.NewInt(330)
 	runTestCase(rewardLimited, 300, 330, 330, "reward limited")
 
+	// limiting factor would be available reward, but leveraged liquidation is not limited by base tokens
+	rewardNotLimited := baseCase()
+	rewardNotLimited.availableReward = sdk.NewInt(330)
+	rewardNotLimited.leveragedLiquidate = true
+	runTestCase(rewardNotLimited, 1000, 1100, 1100, "reward not limited")
+
 	// repay token is worth more
 	expensiveRepay := baseCase()
 	expensiveRepay.repayTokenPrice = sdk.MustNewDecFromStr("2")