Frozen Siloes
When a silo (market) is suspected of an exploit, or exploited, the community can disable all functions in the Silo until a fix is found. Freezing a silo requires passing an on-chain vote.
Let's assume the price oracle of the UNI Silo is compromised. In this event, token holders can freeze the UNI Silo until governance finds a better price oracle to replace the current one. For that purpose, a governance vote can be created. The vote takes 8 days + 2 (total 10 days) for that change to take place given the SiloDAO's governance parameters.
Pausing the UNI Silo for 10 days exposes depositors and borrowers in the silo to significant risk of getting liquidated when the silo is active again with the updated price oracle.
The liquidation risk comes from the fact that during the freeze a user’s collateral might have dropped significantly or a user’s loan (debt) has grown in value to the liquidation point. Consequently, the moment the vote is executed and the silo unfreezes, all undercollateralized loans will likely be liquidated immediately to prevent $ETH depositors in the UNI Silo from experiencing bad debt .
Last modified 1yr ago