Description

The provide_liquidity instruction uses the same liquidity_calculation function as the initialize_pool instruction to calculate the amount of LP tokens to mint based on the amounts of tokens A and B provided:

This calculation is only correct during the initial pool creation (when no LP tokens exist yet). For subsequent liquidity additions, the LP token amount must be proportional to the existing LP supply and reserves.

Impact

Using the initial pool creation formula to mint LP tokens on additional liquidity deposits will cause:

• Incorrect LP token minting: The amount of LP tokens minted will not reflect the depositor’s true share of the pool.

• Imbalanced LP token distribution: Liquidity providers may receive too many or too few LP tokens, resulting in unfair shares.

• Economic exploits: Malicious actors could exploit this miscalculation to mint more LP tokens than deserved, diluting other liquidity providers’ holdings.

• Pool state inconsistency: Pool accounting and invariant assumptions may break, causing downstream issues in swaps or removals.

Correct LP Token Calculation for Adding Liquidity

When liquidity already exists, LP tokens to mint must be proportional to the existing LP supply and token reserves. The correct formula is:

Where:

• totalSupply is the current total supply of LP tokens.

• reserveA and reserveB are the current token balances in the pool vaults.

Recommended Fix

Replace the incorrect call to liquidity_calculation with a function that:

1. Fetches the current total LP token supply.

2. Fetches the current vault balances (reserves) of tokens A and B.

3. Calculates lp_to_mint as the minimum of the proportional LP tokens derived from each token amount relative to reserves and total LP supply.

Fix code: