Core Contracts

Summary

A critical issue in the mint() function of DebtToken.sol causes users to be minted more debt tokens than they should owe, leading to unintended debt inflation. The issue arises from double scaling when computing balanceIncrease, making users liable for higher debt than they actually borrowed. This leads to excessive debt accumulation, unfair borrowing conditions, and potential financial loss. The protocol must urgently address this to prevent users from being overburdened with unintended debt liabilities.

Vulnerability Details

The mint() function first retrieves the user’s debt balance via:

DebtToken.sol#L150

However, balanceOf() already applies rayMul() to scale up the balance:

DebtToken.sol#L223-L226

Later in mint(), scaledBalance is scaled again when computing balanceIncrease if tis isn't the first mint:

DebtToken.sol#L154-L156

This results in double scaling, making balanceIncrease larger than it should be.

Consequently, the incorrectly computed balanceIncrease is added to the original borrow amount:

It then mints an inflated number of debt tokens for the user:

This means the user's debt balance incorrectly increases every time they borrow after the first mint.

Such inflated amount is also propagated via the Mint event:

DebtToken.sol#L165

Impact

• Users are unfairly charged more debt than they actually borrowed from the second borrow onwards.

• Compounded interest is applied on an inflated debt principal, making the issue exponentially worse over time.

• Borrowers may face liquidation sooner than expected, even if they initially borrowed responsibly.

• Protocol fairness and stability are at risk, as some users may unknowingly become significantly over-leveraged.

• Potential reputational damage to the lending protocol, as users experience unexpected losses.

Tools Used

Manual

Recommendations

Consider making the following code refactoring:

DebtToken.sol#L150