Vanguard
First Flight #56
Beginner FriendlyDeFiFoundry
0 EXP
View all submissions
Previous Next
Submission Details
Impact: high
Likelihood: high

Phase 3 Returns OVERRIDE_FEE_FLAG Without Fee Value - LPs Earn 0% Fees Permanently After Bot Protection Ends

Author Revealed upon completion

Root + Impact

Description

Root + Impact

Description

In Phase 3 (post-bot-protection), the _beforeSwap function returns only LPFeeLibrary.OVERRIDE_FEE_FLAG without any fee value:

if (currentPhase == 3) {
return (BaseHook.beforeSwap.selector, BeforeSwapDeltaLibrary.ZERO_DELTA, LPFeeLibrary.OVERRIDE_FEE_FLAG);
// @> BUG: Returns 0x800000 - the flag bit is set, but fee bits (lower 23) are all zero
}

In Uniswap V4, OVERRIDE_FEE_FLAG (0x800000) indicates "use this as the fee". The actual fee is in the lower 23 bits. With only the flag set, effective fee = 0x800000 & 0x7FFFFF = 0%.

Compare to penalty handling which correctly combines fee + flag:

return (..., feeOverride | LPFeeLibrary.OVERRIDE_FEE_FLAG); // Correct: fee value OR'd with flag

Risk

Impact: HIGH - LPs earn 0% fees on ALL swaps after Phase 2 ends, permanently. This causes:

  1. Economic Loss: Zero LP revenue after bot protection period

  2. LP Flight: Rational LPs will remove liquidity

  3. Pool Death: No liquidity incentives = unusable pool

Likelihood: HIGH - This is deterministic behavior in every pool using this hook after Phase 2.

Proof of Concept

// Phase 3 returns:
uint24 returnValue = LPFeeLibrary.OVERRIDE_FEE_FLAG; // = 0x800000
​
// Fee extraction:
uint24 effectiveFee = returnValue & 0x7FFFFF; // = 0
// LP fee = 0% forever!

Recommended Mitigation

Return 0 without the override flag to use pool's default fee:

if (currentPhase == 3) {
- return (..., LPFeeLibrary.OVERRIDE_FEE_FLAG);
+ return (..., 0); // Use pool's configured default fee
}

  • Describe the normal behavior in one or more sentences

  • Explain the specific issue or problem in one or more sentences

// Root cause in the codebase with @> marks to highlight the relevant section

Risk

Likelihood:

  • Reason 1 // Describe WHEN this will occur (avoid using "if" statements)

  • Reason 2

Impact:

  • Impact 1

  • Impact 2

Proof of Concept

​

Recommended Mitigation

- remove this code
+ add this code

Support

FAQs

Can't find an answer? Chat with us on Discord, Twitter or Linkedin.

Give us feedback!