Core Contracts

Summary

The DebtToken's mint function incorrectly calculates interest by using an already interest-adjusted balance to compute additional interest, leading to overstated debt amounts due to compound interest being applied twice.

Vulnerability Details

The mint() function on DebtToken compounds interest twice:

1. This already includes interest adjustment

1. calculates interest again using already adjusted balance

1. mints the inflated amount:

Example scenario:

Initial State:

• User has 100 debt tokens

• Old index = 1.0

• New index = 1.5
  Current Implementation:

1. scaledBalance = balanceOf():

   • Returns 100 1.5 = 150 (already includes interest)

2. balanceIncrease calculation:

   • 150*1.5 = 225 (applies interest again)

   • 150*1.0 = 150

   • balanceIncrease = 225 - 150 = 75

3. New debt = 100 + 75 = 175

   • mints 175 debtToken

Should Be:
* Use unscaled balance (100)
* balanceIncrease = (100 1.5) - (100 1.0) = 50
* New debt = 100 + 50 = 150

Impact

Users accrue significantly more debt than they should because the contract applies interest calculations twice on the same balance, leading to inflated debt positions and potentially unfair liquidations.

Tools Used

Manual Review

Recommendations

Use unscaled balance for interest calculations