Alchemix Transmuter

Summary :

The StrategyOp contract enforces a strict premium requirement for WETH to alETH conversions, which can lead to position management failures during market stress scenarios, potentially trapping user funds and preventing automated debt repayment.

Vulnerability Details :

The contract requires that any WETH to alETH conversion must result in receiving more alETH than the WETH input (premium requirement).

During market stress when WETH/alETH price ratio increases significantly:

1. Automated conversions become impossible

2. Yield harvesting mechanism breaks

3. Debt repayment through yield gets blocked.

Let's say a user has:

• Deposited 10 WETH as collateral

• Borrowed 8 alETH against it.

Price Movement Impact:

1. Normal Market Conditions:

• WETH = $2000

• alETH = $2000

• Position Value = $20,000 collateral, $16,000 debt

1. Market Stress Scenario:

• WETH price rises to $2500

• alETH stays at $2000 (or drops)

• Now collateral = $25,000, but debt value remains $16,000

The Critical Issues:

1. Swap Lockout:

Impact :

As a result

• Strategy can't swap WETH to alETH due to the premium requirement

• Claimed WETH rewards can't be converted back to alETH

• Debt repayment mechanism gets blocked.

1. Compounding Effect:

2. • Unconverted rewards affect total strategy value

   • Users might need to manually repay more debt

   • Higher effective borrowing costs

Tools Used

• Manual code review

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