Fee Effects are not transparent as the penalty fees are not accounted or redirected

Description

• When penalties are applied, higher swap fees should either discourage behavior or transparently redistribute value (e.g., to LPs or the protocol).

• Although the contract tracks totalPenaltyFeesCollected, this variable is never updated. Penalty fees are implicitly absorbed by Uniswap’s fee mechanism without explicit accounting or attribution, resulting in misleading state and unclear economic outcomes.

Risk

Likelihood:

• Occurs whenever penalty fees are applied

• Affects all penalized swaps

Impact:

• Misleading accounting state

• Auditors and integrators may assume penalties are tracked when they are not

• Economic behavior becomes opaque

Proof of Concept

1. Swap violates phase conditions

2. Penalty fee override is applied

3. totalPenaltyFeesCollected remains unchanged

4. No mechanism exists to reconcile penalty flow