Shiny Pawn — off-chain offer amount creates underwater loans

Source & credit. Reproduction of a public audit finding curated by AuditVault — the original finding: 64681-h-01-protocol-insolvency-risk-due-to-lack-of-on-chain-oracle. Standalone Foundry PoC and full write-up: 64681-h-01-protocol-insolvency-risk-lack-on-chain-oracle_exp in the evm-hack-registry mirror.

Vulnerability classes: vuln/oracle/missing-validation · vuln/logic/liquidation-logic

Reproduction: local synthetic Foundry reduction; the complete passing trace is in output.txt.

Key info#

Field	Value
Loss	A collateral fall leaves 200 units of modeled bad debt; no live funds are moved.
Vulnerable contract	`Pawn.pawn` / `Pawn.liquidate` in test/64681-h-01-protocol-insolvency-risk-lack-on-chain-oracle.sol
Attacker EOA	`0x1111111111111111111111111111111111111111`
Attack contract	`Exploit`
Attack tx	Local Foundry `Exploit.run()`
Chain · block · date	Ethereum model · block 0 · synthetic
Compiler	Solidity `^0.8.24`
Bug class	Missing on-chain LTV oracle and health-based liquidation

TL;DR#

Pawn trusts a backend-signed offerAmount without checking collateral value on-chain, then permits liquidation only after a deadline. A price drop during the term creates bad debt that cannot be liquidated early.

Background#

RWA-backed lending needs an on-chain valuation or conservative LTV bound. A time-only liquidation condition cannot respond to an underwater position while the loan is still active.

The vulnerable code#

SOLIDITY

function pawn(uint256 collateralValue, uint256 offerAmount, uint256 deadline) external returns (uint256 id) {
    // @> VULN: signed offer is accepted without on-chain LTV/oracle validation.
    id = nextId++;
    positions[id] = Position(offerAmount, collateralValue, deadline, true);
}

Root cause#

The protocol imports risk decisions from an off-chain signer and exposes no health-factor liquidation path. When collateral falls, borrower incentives and protocol recovery diverge.

Preconditions#

A backend signs an offer near the maximum intended LTV.
Collateral value drops before the loan deadline.
liquidate checks only now >= deadline.

Attack walkthrough#

Originate 1,800 against a 2,000 appraisal with deadline 1,000.
Update modeled collateral to 1,600.
Liquidation at timestamp 500 reverts; badDebt is 200. See output.txt:4.

Diagrams#

sequenceDiagram participant B as Borrower participant P as Pawn participant M as Market B->>P: pawn(collateral=2000, offer=1800) M-->>P: collateral falls to 1600 B->>P: liquidate at t=500 P-->>B: revert (deadline is 1000) Note over P: 200 bad debt remains

Remediation#

Validate offerAmount <= collateralValue * maxLtv against a trusted, fresh oracle at origination. Add health-factor liquidation during the term, normalize decimals, and define stale-feed behavior.

How to reproduce#

BASH

cd evm-hack-registry/64681-h-01-protocol-insolvency-risk-lack-on-chain-oracle_exp
forge test -vvvvv

Sources#

Reference: https://github.com/shieldify-security/audits-portfolio-md/blob/main/Shiny-Security-Review.md

Sources & further analysis#

Reproductions & code

Standalone PoC + full trace: 64681-h-01-protocol-insolvency-risk-lack-on-chain-oracle_exp (evm-hack-registry mirror).
AuditVault finding: 64681-h-01-protocol-insolvency-risk-due-to-lack-of-on-chain-oracle.

Alerts & third-party analyses

Web3Sec X hacked database: search.
Rekt leaderboard: search.
Solodit incident search: search.

These dashboards index community alerts tweets, post-mortems, and independent write-ups. Reach them through the protocol name above to cross-check this reproduction against other analyses.

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