Trader Joe Liquidation Bot Bounty

This project demonstrates the concepts and implementation of a liquidation bot specifically for use with the Trader Joe DEX on Avalanche's C-chain.

This project comes with unit tests, contracts, scripts to deploy and run the liquidation bot, and a twitter bot that tweets when the contract liquidates successfully.

What is a liquidation

A liquidation seizes collateral from an underwater account on a decentralized exchange. Decentralized exchanges have no management that issue margin calls when accounts become undercollateralized; therefore, lending platforms must provide incentives and the ability for third parties to perform flash loans that than repay borrows and seize collateral within certain constraints.

The primary constraint is up to 50% of the borrow amount can be seized in collateral. Therefore, the amount of collateral owned by the borrower must be sufficient. The collateral seized also has to have the value to incentivize liquidation. Small amounts may be lower than gas costs.

Contract addresses

FlashloanBorrower contract is deployed on Avalanche mainnet 0x3F5A2107f116cd936E4038A9BD2D578d2e3E660c

Successful liquidations https://snowtrace.io/tx/0x9c555fa6b6cc6817ba87ae60fd7bd0777e0eea3953384bc7dbcd3c60595d772f https://snowtrace.io/tx/0x6275763bcf2655d79f61035fafe1d3c26d3d2231e9701e3b811a56de92cf4d58 https://snowtrace.io/tx/0xeacc957b2149a085cf25e97e991c815cd951ba825ea6c73b892fbf9dbd079f9f

Source code

scripts/app.ts This is the primary script that can be run to monitor for unhealthy accounts and liquidate those meeting the criteria.

scripts/deploy.ts This is the hardhat deploy script.

test/FlashloanBorrower.ts Unit tests which call the liquidate function of the FlashloanBorrower contract.

contracts/FlashloanBorrower.sol Solidity contract that implements the flash loan, swaps, and liquidation.

scripts/twitter.ts Twitter bot that listens for LiquidateSuccess events and tweets.

Runtime options

Compiles all contracts and produces typechain for typescript scripts.

yarn compile

Runs all mocha tests. Note if you see Error: Timeout of 40000ms exceeded., the unit tests rely on forking avax mainnet, network performance can cause tests to timeout.

yarn test

Run app.ts script against Avalanche mainnet

yarn app

Run app.ts script against Avalanche fuji (Note that Trader Joe is not deployed to Fuji)

yarn app:test

Deploy contracts to Avalanche mainnet

yarn deploy

Deploy contracts to Avalance fuji

yarn deploy:test

Observations

There are a number of Trader Joe accounts with multiple small positions that although have a considerable total borrow and total collateral size, each position is too small to liquidate given gas costs with the current implementation.

The liquidity bot contract is also susceptible to slippage problems with some borrow / collateral tokens. I also found an issue with LINK as collateral. No Trader Joe pools exist for LINK other than LINK/AVAX; therefore, if you need to flash loan from something like WETH to liquidate a LINK borrow or collateral, no pool exists to do the swap.

Future Improvements

The contract could be updated to do multiple positions owned by a borrower. Right now, it only picks the greatest borrow position and greatest collateral position.

app.ts could also be updated to save unhealthy or slightly healthy accounts to a file or db between runs.

I'd also like to optimize the solidity to reduce gas costs.

Etherscan verification

To try out Etherscan verification, you first need to deploy a contract to an Ethereum network that's supported by Etherscan, such as Ropsten.

In this project, copy the .env.example file to a file named .env, and then edit it to fill in the details. Enter your Etherscan API key, your Ropsten node URL (eg from Alchemy), and the private key of the account which will send the deployment transaction. With a valid .env file in place, first deploy your contract:

hardhat run --network ropsten scripts/sample-script.ts

Then, copy the deployment address and paste it in to replace DEPLOYED_CONTRACT_ADDRESS in this command:

npx hardhat verify --network ropsten DEPLOYED_CONTRACT_ADDRESS "Hello, Hardhat!"

Performance optimizations

For faster runs of your tests and scripts, consider skipping ts-node's type checking by setting the environment variable TS_NODE_TRANSPILE_ONLY to 1 in hardhat's environment. For more details see the documentation.