How Can a Faulty Oracle Affect the Calculation of Collateralization Ratio? ⎊ Path

How Can a Faulty Oracle Affect the Calculation of Collateralization Ratio?

A faulty oracle that reports an artificially low price for a user's collateral asset will cause the smart contract to calculate a lower collateral value. This lower value can push the user's collateralization ratio below the required maintenance level.

Conversely, an artificially high price for the borrowed asset will also reduce the ratio. In both cases, the faulty data can incorrectly trigger an automated and unfair liquidation of the user's position.

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Glossar

Faulty Oracle

Derivation ⎊ A Faulty Oracle within cryptocurrency, options, and derivatives contexts denotes a data source providing inaccurate or manipulated information crucial for pricing and risk assessment.