QuantAMM

Summary

The MomentumUpdateRule contract contains inadequate validation for the kappa parameter in its validParameters function. This could allow malicious or erroneous inputs to affect the weight calculations of the pool, potentially leading to economic vulnerabilities or system instability.

Vulnerability Details

https://github.com/Cyfrin/2024-12-quantamm/blob/a775db4273eb36e7b4536c5b60207c9f17541b92/pkg/pool-quantamm/contracts/rules/MomentumUpdateRule.sol#L163

This validation is insufficient as it only checks if kappa values are greater than zero, without implementing proper bounds checking or considering the impact of extreme values on the weight calculations.

Impact

The vulnerability can manifest in several ways:

1. Economic Impact Scenario:
   An attacker could input extremely large kappa values that pass the basic validation
   These values would be used in the weight calculation formula: w(t) = w(t − 1) + κ · ( 1/p(t) * ∂p(t)/∂t − ℓp(t))
   This could result in extreme weight adjustments, potentially leading to:
   Unintended asset allocation
   Market manipulation opportunities
   Destabilization of pool economics

2. Technical Impact:
   Large kappa values could cause numerical instability
   Potential overflow in calculations despite using PRBMath
   Unexpected behavior in weight updates affecting pool balance

Example Attack Scenario:

1. Attacker identifies the lack of upper bounds in kappa validation

2. They input a very large kappa value that passes the > 0 check

3. This causes extreme weight adjustments in the _getWeights function

4. Pool weights become severely imbalanced

5. Attacker exploits this imbalance for financial gain

Tools Used

Manual code review

Recommendations

1. Implement proper bounds checking for kappa values:

1. Add parameter interdependency validation:
   Validate kappa array length matches pool assets
   Implement reasonable bounds based on economic models
   Add checks for parameter relationships

2. Consider implementing emergency controls:
   Add ability to pause weight updates if extreme values are detected
   Implement gradual weight adjustment limits
   Add monitoring for unusual weight changes

3. Add documentation specifying safe parameter ranges and their economic implications