DittoETH

Summary

• The TAPP (Treasury Asset Protection Pool) mechanism, designed to safeguard market stability during price shocks, has been observed to operate counter to its intended purpose. Specifically, during market shutdowns triggered by undercollateralization, the TAPP seizes remaining collateral above 1:1 ratio , leaving users with pegged assets at a loss often cause TAPP claims collateral before users can redeem their assets, resulting in reduced values during high volatility events.Additionally there is no try to refund when Ratio is under 1:1. leaving the users to take the loss.

Vulnerability Details

• the protocol claims that the TAPP(Treasury Asset Protection Pool) Used to back under collateralized markets in case of black Swans,and Protecting Ditto users who are holding the pegged assets from loss.

TAPP:

The Treasury Asset Protection Pool (TAPP) is used for bolstering the stability of market pegged assets during periods of large price shock movements....

• however that's not true in case of market shutdown,in fact the oposit is true .

• in case of a market became under collateralized anyone can call shutdownMarket function from MarketShutdownFacet facet and close this market.

• as we can see the The market will close under the minimum ratio .however the minimum ratio it doesn't mean Necessarily 1:1.

• we see if the market is above 1 ratio .the TAPP will take the remaine collateral and let's this market with 1:1 ratio.

• Then any user who hold the ERC pegged assets can redeem his eth. here :

• Notice that the users will get less value. then thier ERC pagged asset value if ration is CR < 1.and in market shutdown events, where the TAPP enforces a 1:1 collateral ratio first, frequently occur during periods of high market volatility. In such situations, users experience amplified losses as the TAPP claims remaining assets about a 1:1 ratio, while the collaterall price continues to crash.

• also Notice That In the event of a market becoming undercollateralized, the TAPP does not intervene to refund or stabilize the market. Instead, it allows users to suffer losses without attempting to mitigate or share the burden, contrary to its claimed purpose.

• so TAPP behaves inversely: users face losses while the protocol benefits, contrary to what should occur in such situations.

• Furthermore, honest shorters with Healthy shortRecords and high C-ratios will face substantial losses. They are unfairly penalized for the unhealthy shortRecords, resulting in the loss of their positions and collateral holdings.

Tools Used

Manual review.

Recommendations

I would recommend :

• set a claim period for users holding asset to redeem thier eth :

• if CR < 1 . try to refund the market from the TAPP balance if it's posssible.

• after the Claim Ends or there is no left Debt(you can track this by decreasing the debt from Asset each time a user redeemed). if there is a remaining collateral add it to the TAPP balance. which would be more Efficient for protocol and users.