Add Liquidation Incentives & Auction to Borrowing Contract

[ONEONUORA]

Component: Contracts (Borrowing) | Effort: 5-7 days | Priority: MEDIUM

Current State

Basic liquidation exists with fixed 5% bonus. No auction mechanism or competitive liquidation.

Missing Functions

Advanced liquidation functions:

• start_liquidation_auction() - Start Dutch auction for liquidation
• bid_on_liquidation() - Place bid in auction
• execute_auction() - Execute winning bid
• get_auction_status() - Get current auction state
• cancel_auction() - Cancel if loan becomes healthy
• get_liquidation_discount() - Calculate current discount in auction

Why This Matters

• Fair pricing: Auctions find market price for collateral
• Better recovery: Competition increases liquidation proceeds
• Efficiency: Faster liquidations with multiple bidders
• Transparency: Public auction process

Current Gap

The liquidate() function at line 331 uses fixed liquidation bonus. No price discovery mechanism.

Tasks

• Add LiquidationAuction struct (loan_id, start_price, current_price, highest_bidder, status)
• Implement start_liquidation_auction() function
  • Validate health factor < 120%
  • Set starting price
  • Set auction duration
  • Emit AuctionStarted event
• Implement Dutch auction price decay
• Add bid_on_liquidation() function
  • Validate bid amount
  • Update highest bidder
  • Emit BidPlaced event
• Implement execute_auction() function
  • Transfer collateral to winner
  • Repay loan from proceeds
  • Return excess to borrower
  • Emit AuctionExecuted event
• Add auction cancellation if loan repaid
• Add tests for auction scenarios
• Document auction mechanism

Acceptance Criteria

• Auctions start for unhealthy loans
• Dutch auction price decreases over time
• Bids placed and tracked correctly
• Winning bid executes liquidation
• Excess returned to borrower
• Tests cover auction lifecycle