How Do Collateral Management Functions Introduce Reentrancy Risk in Options Contracts?
Options contracts often require users to deposit collateral. The collateral management functions handle deposits, withdrawals, and liquidations.
If a withdrawal function for collateral is vulnerable to reentrancy, an attacker could withdraw more collateral than they are entitled to. Furthermore, if a liquidation function makes an external call before updating the collateral status, the attacker could re-enter to prevent liquidation or exploit the collateral pool.
Glossar
Collateral Management
RiskFunction ⎊ Collateral Management encompasses the systematic oversight, valuation, and maintenance of assets pledged to secure obligations, particularly crucial in leveraged derivatives trading and decentralized finance lending.
Reentrancy Risk
Exploitation ⎊ Reentrancy risk within cryptocurrency and decentralized finance arises from recursive external calls in smart contracts, enabling a malicious actor to repeatedly withdraw funds before the contract’s state is updated, effectively draining available balances.