krazedegen / joeliq

Flash loan liquidation bot for traderjoe.xyz

🌊 Joe Liquidator 🌊

This repository is a liquidation bot built for Trader Joe, a DEX and lending service built on the Avalanche network.

It was built adhering to this Trader Joe Liquidation Bot Flash Loans Spec.

Structure

This repository is broken up into two main directories, liquidator and bot

liquidator

This directory contains all relevant smart contracts. The main one is liquidator/contracts/JoeLiquidator.sol which contains an external liquidate function:

contract JoeLiquidator {
  function liquidate(
      address _borrowerToLiquidate,
      address _jRepayTokenAddress,
      address _jSeizeTokenAddress
  ) external;
}

To learn more, see Liquidation Algorithm.

bot

This directory contains a node.js project which is what periodically searches for liquidatable accounts using the Banker Joe lending subgraph and calls our JoeLiquidator contract to perform liquidation.

Setup

The only setup required is to make a copy of bot/env.template and rename it to bot/.env.

In this file, insert

• JOE_LIQUIDATOR_CONTRACT_ADDRESS: the address of the deployed JoeLiquidator.sol contract on mainnet
• WALLET_PRIVATE_KEY: the private key of the wallet address you would like to use to perform liquidation

Installation

git clone https://github.com/kevinchan159/joe-liquidator.git
cd joe-liquidator/liquidator
yarn install
cd ../bot
yarn install

Building

To compile the smart contracts:

cd liquidator
yarn compile

To run the bot:

cd bot
yarn start

Testing

The smart contract tests are defined under the liquidator/test directory. To run them:

cd liquidator
yarn test

Tests are run on the forked Avalanche mainnet. There are three tests:

• testLiquidateBorrowERC20SupplyERC20.js: Liquidates a borrow position of jUSDT and supply position of jLINK
• testLiquidateBorrowERC20SupplyNative.js: Liquidates a borrow position of jUSDC and supply position of jAVAX
• testLiquidateBorrowNativeSupplyERC20.js: Liquidates a borrow position of jAVAX and supply position of jLINK

The underwater accounts are generated in each test by:

1. Using a test account to take out a loan position
2. Increase timestamp by a long amount of time
3. Mine block
4. Accrue interest

Doing this for cases in which the borrow rate is greater than the supply rate will lead to accounts that incur shortfall and are thus liquidatable!

Background

Liquidation

Liquidation is possible when an account is incurring a shortfall, i.e. their total borrow balance exceeds their total collateral balance. To prevent the potential losses, the protocol exposes a public liquidateBorrow/liquidateBorrowNative function that can be called by anyone to "liquidate" an underwater account.

Liquidation is the process of selling a portion of the underwater account's collateral at a discounted rate, i.e. the liquidation incentive, to a liquidator in exchange for the liquidator repaying an equivalent amount of the underwater account's borrow position. The maximum amount of collateral that can be sold to the liquidator is determined by the close factor.

Flash Loans

Flash loans are a special type of loan that allows one to take out a loan without providing collateral. The reason this is possible is that if the borrower doesn't repay the flash loan (+ flash loan fee) by the end of the transaction, the whole transaction is reverted completely.

Liquidation Algorithm

Joe Liquidator performs liquidation using flash loans. The algorithm followed for liquidation is as follows:

1. Liquidator calls JoeLiquidator#liquidate passing in:
   • borrower to liquidate
   • jToken of the borrow position to repay
   • jToken of the supply position to seize
2. Check that the borrower is indeed liquidatable, i.e.:
   • liquidity is zero
   • shortfall is non-zero
3. Decide which jToken to flash loan:
   • if the borrow position to repay is jUSDC, flash loan from jWETH
   • else flash loan from jUSDC
4. Calculate amount of the borrow position to repay
5. Calculate amount to flash loan:
   • determined by calling JoeRouter#getAmountsIn to see how much of the flash loan token is needed to swap for the repay amount
6. Perform flash loan
7. Upon receiving flash loan, swap the flash loan tokens for the repay tokens using JoeRouter
8. Call liquidateBorrow on the jToken borrow position to repay and receive jTokens from the supply position to seize
9. Redeem seized collateral using the jTokens we received from liquidation
10. Swap enough of the seized collateral to flash loan tokens using JoeRouter:
    • total amount of flash tokens needed is the flash loan amount + flash loan fee
    • amount to swap is calculated using JoeRouter#getAmountsIn
11. Swap any of the remaining seized collateral left to AVAX (unless the collateral is AVAX)
12. Transfer profited AVAX back to liquidator
13. Repay flash loan

NOTE: In step 3, you may be wondering why we don't simply flash loan the token of the borrow position that we're repaying. The reason is that the jToken contracts have a reetrancy guard which means that you cannot flashLoan and liquidateBorrow the same token. Thus, we have to flash loan a different token, swap the flash loan token for the repay token, and then call liquidateBorrow.

Bot

The bot works in a very simple fashion. Every INTERVAL_IN_MS (currently set to 10000) it will:

1. Query Banker Joe lending subgraph for underwater accounts
2. Choose an underwater account
3. Iterate through tokens and find borrow position to repay
4. Iterate through tokens and find supply position to seize where:
   • supplyBalanceUnderlying > 0
   • enterMarket === true
   • Must have enough supplyBalanceUnderlying to seize 50% of borrow value
5. Call JoeLiquidator#liquidate

NOTE: JoeLiquidator.sol needs to be deployed to mainnet for the bot to work properly.