Submitted by 0xRobocop, also found by ether_sky
Most actions that modify the (ICR) of a Collateralized Debt Position (CDP) must adhere to specific regulations to maintain the systems stability. For instance, closing a CDP or decreasing its collateral is not permitted if it would trigger the systems recovery mode, or if the system is already in that mode.
However, the rules for redemptions are less stringent. The only conditions are that both the system and the CDPs undergoing redemption must have an TCR and ICR above the MCR. So, it is possible to redeem a cdp that is actually helping the system to stay healthy.
Follow the next steps to run the coded proof of concept:
This proof of concept highlights a significant risk: a situation where the entire system becomes undercollateralized. Although the likelihood of this occurring is low, there are other, more probable scenarios to consider. One such scenario involves executing one or multiple redemptions that push the system into recovery mode.
Currently, theres a redemption fee in place that escalates the cost of withdrawing large amounts of collateral, serving as a financial deterrent to potential manipulation. However, this is primarily an economic obstacle. Given that eBTC aims to be a fundamental component for Bitcoin in the Ethereum DeFi ecosystem, its crucial to ensure that redemptions do not jeopardize the systems stability.
It should also be noted that the RiskDaos analysis regarding redemptions does not extend to situations where redemptions are strategically used to affect the systems collateralization.
Redemptions should have the same rules for other cdp changes. For example:
Alex the Entreprenerd (Badger) confirmed and commented:
Note: See full discussion here.
