Part 2

Summary

The Vault.updateVaultAndCreditDelegationWeight function truncates the 256-bit totalAssets() value to 128 bits, causing incorrect credit delegation weights. This propagates inaccurate debt values to connected markets, destabilizing the protocol’s financial accounting.

Vulnerability Details

Location

Vault.sol – updateVaultAndCreditDelegationWeight function
Code Snippet:

Technical Analysis

1. Root Cause:

   • IERC4626.totalAssets() returns a uint256, but newWeight is stored as uint128.

   • If totalAssets() exceeds 2^128 - 1, the value is truncated, discarding higher-order bits.

   • Example:

     • Actual totalAssets() = 2^128 + 1 (340,282,366,920,938,463,463,374,607,431,768,211,457)

     • Truncated newWeight = 1 (due to uint128 overflow).

2. Credit Delegation Impact:

   • Credit delegation shares are calculated as:

     UD60x18 creditDelegationShareX18 = ud60x18(creditDelegation.weight).div(ud60x18(totalCreditDelegationWeight));

   • Truncated weights distort this ratio, leading to incorrect debt distribution.

3. Systemic Propagation:

   • Markets use these weights to calculate debtPerVaultShare, affecting global debt tracking.

   • Example: A vault with newWeight = 1 (instead of 2^128 + 1) would delegate ~0% of its credit capacity, starving markets of debt coverage.

Impact

• High Severity

  • Undercollateralized Markets: Truncated weights underreport vault assets, leaving markets undercollateralized and vulnerable to liquidation cascades.

  • Debt Mismatches: Markets may accumulate unaccounted debt, leading to protocol insolvency.

  • Vault Exploitation: Attackers could intentionally overflow totalAssets() to manipulate credit delegation (e.g., reducing their debt share).

Proof of Concept (PoC)

Scenario Setup

1. Vault Initialization:

   • A vault uses an ERC4626 token where totalAssets() returns 2^128 + 1.

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1. Market Impact:

   • A connected market calculates its credit share as creditDelegationShareX18 = 1 / 1 = 1e18 (100%), but the true share should be negligible.

   • The market incorrectly assumes it has 100% of the vault’s credit capacity, leading to overborrowing and eventual insolvency.

Recommendations

Immediate Fix

1. Use Full 256-bit Precision:
   Replace uint128 with uint256 for credit delegation weights:

   uint256 newWeight = IERC4626(self.indexToken).totalAssets();

   self.totalCreditDelegationWeight = newWeight.toUint256(); // Use SafeCast

2. Add Overflow Checks:
   Use OpenZeppelin’s SafeCast to prevent silent truncation:

   import { SafeCast } from "@openzeppelin/utils/math/SafeCast.sol";

   ​

   uint256 newWeight = IERC4626(self.indexToken).totalAssets();

   self.totalCreditDelegationWeight = SafeCast.toUint128(newWeight); // Reverts on overflow

Long-Term Mitigations

1. Asset Limits:
   Enforce a maximum totalAssets() per vault to stay within uint128 bounds.

2. Circuit Breakers:
   Pause vault operations if totalAssets() approaches 2^128 - 1.

3. Monitoring:
   Track vault asset growth and trigger alerts near overflow thresholds.