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Algorithmic Solvency Engine (DSCEngine)

Foundry License Coverage Fuzzing

⚡ Executive Summary

A decentralized, over-collateralized stablecoin system implementing the MakerDAO DSS (Dai Stablecoin System) architectural pattern. The protocol maintains a 1:1 USD peg via algorithmic liquidation incentives and rigid collateralization thresholds (200%).

Unlike governance-heavy implementations, this protocol utilizes an immutable, governance-free architecture to minimize the attack surface and eliminate centralization risks.

⚠️ ARCHITECTURAL NOTE: This implementation utilizes a Single-Oracle design (Chainlink) with OracleLib staleness checks for efficiency. For Mainnet production, a Dual-Oracle (Chainlink + Pyth/Uniswap TWAP) fallback pattern is recommended to prevent DoS during single-oracle outages.

🛡️ Security & Invariant Analysis

Date: December 14, 2025

This protocol has undergone extensive Stateful Fuzz Testing to verify economic solvency under adversarial conditions.

Core Invariant

The protocol must maintain overcollateralization OR ensure that any underwater position is immediately liquidatable.

Fuzzing Campaign Metrics

Metric Value Description
Handler Stateful Multi-user simulations (Deposit, Mint, Redeem, Burn, Liquidate)
Price Volatility $100 - $100k Randomized Chainlink feed updates to stress-test health factors
Iterations > 1,000 Deep-state sequences to find edge-case insolvency

Validated Security Properties

  1. Solvency Guarantee: No violations of the core invariant were found when the liquidation engine is active.
  2. Oracle Security: OracleLib successfully reverts on stale (>3 hours) or non-positive price data, preventing "Bad Data" insolvency.
  3. Math Safety: No overflow/underflow vulnerabilities detected in the WadRayMath debt calculation logic.
  4. Access Control: No unauthorized minting or collateral extraction was possible during random seed runs.

🏗️ System Architecture

Smart Contracts

  • DSCEngine.sol (Core Logic):
    • Handles all collateral deposits and redemptions.
    • Enforces the HealthFactor checks ($HF < 1.0$ triggers liquidation).
    • Implements the "Pull over Push" payment pattern to prevent reentrancy.
  • DecentralizedStableCoin.sol (ERC-20):
    • Owned exclusively by the Engine.
    • Burn/Mint logic restricted to solvency-checked transactions.
  • OracleLib.sol (Circuit Breaker):
    • Wraps Chainlink Aggregators to enforce heartbeat validity.
    • Reverts transactions if price feeds are stale, freezing the protocol to protect funds.

Risk Parameters

  • Liquidation Threshold: 50% (200% Over-collateralization required).
  • Liquidation Bonus: 10% (Incentivizes keepers to restore system health).
  • Precision: 1e18 (Standardized to prevent dust-loss during swaps).

🧪 Testing Strategy

The codebase employs a tiered testing approach focusing on Correctness and Economic Safety.

  1. Unit Tests: 96%+ Line coverage on DSCEngine.sol. Covers happy paths, Revert strings, and Access Control.
  2. Adversarial Mocks: Custom ERC-20 mocks that return false on transfers or fail minting to verify SafeERC20 wrapper logic and error handling.
  3. Invariant Handlers:
    • Solvency: totalCollateralValue >= totalSupply
    • Getter Safety: Critical view functions never revert (DoS protection).

👨‍💻 Author

Kalyan TR Smart Contract Security Researcher & SDET

Transitioning 5 years of regulated-domain QA (Finance/Healthcare) into Web3 Security. Active contributor to OpenZeppelin and competitor on CodeHawks/Sherlock.

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