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Update README.md
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@RickGriff
RickGriff authored Sep 19, 2024
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Expand Up @@ -1210,8 +1210,8 @@ When `lastGoodPrice` is used to price the LST, the _real_ market price may be hi

| Scenario | Consequence |
|------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| lastGoodPrice > market price | Urgent redemptions return too little LST collateral, and may be unprofitable even when BOLD trades at $1 or below |
| lastGoodPrice < market price | Urgent redemptions return too much LST collateral. They may be too profitable, compared to the market price. |
| lastGoodPrice > real market price | Urgent redemptions return too little LST collateral, and may be unprofitable even when BOLD trades at $1 or below |
| lastGoodPrice < real market price | Urgent redemptions return too much LST collateral. They may be too profitable, compared to the market price. |

#### Solution

Expand All @@ -1226,15 +1226,25 @@ If the primary oracle setup fails on a given LST branch, then using `lastGoodPri

However, a fallback price utilizing the ETH-USD price and the LST's canonical rate could be used. The proposed fallback price calculation for each branch is here:

| Collateral | Primary price calc | Fallback price calc |
|------------|----------------------------------------------------------------|--------------------------------------------|
| WETH | ETH-USD | lastGoodPrice |
| WSTETH | STETH-USD * WSTETH-STETH_canonical | ETH-USD * WSTETH-STETH_canonical |
| RETH | min(ETH-USD * RETH-ETH, ETH-USD * RETH-ETH_canonical) | ETH-USD * RETH-ETH_canonical |
| Collateral | Primary price calc | Fallback if LST market oracle fails | Fallback if ETH-USD market oracle fails | Fallback if canonical rate fails |
|------------|---------------------------------------------------------|------------------------------------------------------------|-----------------------------------------|----------------------------------|
| WETH | ETH-USD | N/A | lastGoodPrice | N/A |
| WSTETH | STETH-USD * WSTETH-STETH_canonical | min(lastGoodPrice, ETH-USD * WSTETH-STETH_canonical) | lastGoodPrice | lastGoodPrice |
| RETH | min(ETH-USD * RETH-ETH, ETH-USD * RETH-ETH_canonical) | min(lastGoodPrice, ETH-USD * RETH-ETH_canonical) | lastGoodPrice | lastGoodPrice |

During shutdown no borrower ops are allowed, so the main risk of a manipulated canonical rate (inflated price and excess BOLD minting) is eliminated, and it will be safe to use the canonical rate in conjunction with ETH-USD.

Additionally, if the _ETH-USD_ oracle fails after shut down, then the LST PriceFeed should finally switch to the `lastGoodPrice`, and the branch remains shut down.
## Primary LST feed failure

During shutdown no borrower ops are allowed, so the main risk of a manipulated canonical rate (inflated price and excess BOLD minting) is eliminated. However, in this case we still take a minimum: `min(lastGoodPrice, ETH-USD * canonical_rate)`. This ensures that if the canonical rate is also manipulated up, we still give urgent redemptions a chance of being profitable (and clearing bad debt) with the `lastGoodPrice`.

## Canonical rate failure
The LST canonical exchange rate is used in all calculations on all PriceFeeds. If it fails, the branch falls back to using the `lastGoodPrice`, and the branch gets shut down if it is live. If the canonical rate fails _after_ shut down, then the LST PriceFeed switches `lastGoodPrice` and the branch remains shut down. When calling the LST contract externally to fetch the canonical rate, failure is defined as:

- The returned rate is 0, or
- The external call reverts

## ETH-USD feed failure
The ETH-USD market oracle is used in all calculations on all PriceFeeds. If it fails, the branch falls back to using the `lastGoodPrice`, and the branch gets shut down if it is live. If the ETH-USD oracle fails _after_ shut down, then the LST PriceFeed switches `lastGoodPrice` and the branch remains shut down.

The full logic is implemented in this PR:
https://github.com/liquity/bold/pull/393
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