Submitted by osmanozdemir1, also found by QiuhaoLi, Infect3d, crunch, 0xCiphky, circlelooper, Jiamin, 0xStalin, Juntao, rvierdiiev, and HChang26
https://github.com/code-423n4/2023-10-wildcat/blob/c5df665f0bc2ca5df6f06938d66494b11e7bdada/src/market/WildcatMarketConfig.sol#L79
https://github.com/code-423n4/2023-10-wildcat/blob/c5df665f0bc2ca5df6f06938d66494b11e7bdada/src/market/WildcatMarketBase.sol#L178
Lenders might be flagged as sanctioned by the ChainAnalysis oracle and these lenders can be blocked with the nukeFromOrbit() function or during a withdrawal execution. Both of these functions will call the internal _blockAccount() function.
https://github.com/code-423n4/2023-10-wildcat/blob/c5df665f0bc2ca5df6f06938d66494b11e7bdada/src/market/WildcatMarketBase.sol#L163
As we can see above, if the users scaled balance is greater than zero, an escrow contract is created for market tokens and the scaled token balance is transferred to the escrow contract.
In this protocol, there are two types of tokens: Underlying tokens, and market tokens. Market tokens are used for internal balance accounting and it is tracked with scaled balances. Underlying tokens are tracked with normalized balances. scaleFactor is the value that provides accumulated interest, and increment with every state update. scaled balances are multiplied by the scaleFactor and this will provide the normalized balances.
According to the protocols WhitePaper (page 16), blocked accounts should not earn interest. 
However, because the escrow contract holds scaled balances, these funds will keep earning interest. These scaled balances will be normalized when the funds are released (after the sanction is removed) according to that dates scaleFactor.
Note: There might be two escrow contracts for the same lender if it is triggered during a withdrawal request. One with market tokens and the other with underlying tokens. The one with underlying tokens does not earn interest as expected. However, the escrow with the market tokens will still keep earning interest. I believe a blocked account earning interest contradicts the idea of the blocking.
I think all of the scaled balances should be normalized before transferring to the escrow contract to stop earning interest.
Context
laurenceday (Wildcat) commented:
laurenceday (Wildcat) acknowledged
Note: For full discussion, see here.
