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

Deposits incorrectly increase the exchange rate, letting later depositors extract value from earlier liquidity providers

cryptobloc

Title*: Deposits incorrectly increase the exchange rate, letting later depositors extract value from earlier liquidity providers

Severity: High

Scope Affected:

  • src/protocol/ThunderLoan.sol

  • ThunderLoan.deposit()

  • src/protocol/AssetToken.sol

  • AssetToken.updateExchangeRate()

Root + Impact

Description

The normal behavior is that deposits should mint asset tokens according to the current exchange rate. The exchange rate should increase only when the protocol earns fees from flash loans.

The issue is that deposit() calls assetToken.updateExchangeRate(calculatedFee) after minting asset tokens. No fee has actually been earned during a deposit. This artificially increases the exchange rate and gives all asset token holders, including the new depositor, a claim on more underlying than was deposited.

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;
assetToken.mint(msg.sender, mintAmount);
uint256 calculatedFee = getCalculatedFee(token, amount);
@> assetToken.updateExchangeRate(calculatedFee);
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

Risk

Likelihood:

  • This occurs on every deposit for every allowed token.

  • This becomes exploitable once more than one liquidity provider has deposited, because later depositors can redeem inflated shares against earlier liquidity.

Impact:

  • Later depositors can withdraw more underlying than they deposited.

  • Earlier liquidity providers subsidize the artificial exchange-rate increase and lose funds.

Proof of Concept

function testDepositInflatesExchangeRateAndLetsSecondDepositorExtractValue() public allowedToken {
uint256 depositAmount = 1_000 ether;
​
tokenA.mint(lp1, depositAmount);
vm.startPrank(lp1);
tokenA.approve(address(thunderLoan), depositAmount);
thunderLoan.deposit(tokenA, depositAmount);
vm.stopPrank();
​
tokenA.mint(lp2, depositAmount);
vm.startPrank(lp2);
tokenA.approve(address(thunderLoan), depositAmount);
thunderLoan.deposit(tokenA, depositAmount);
​
AssetToken assetToken = thunderLoan.getAssetFromToken(tokenA);
uint256 lp2AssetBalance = assetToken.balanceOf(lp2);
thunderLoan.redeem(tokenA, lp2AssetBalance);
vm.stopPrank();
​
assertGt(tokenA.balanceOf(lp2), depositAmount);
}

The second depositor deposits 1_000 ether and immediately redeems more than 1_000 ether.

Recommended Mitigation

Remove the exchange-rate update from deposit():

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;
assetToken.mint(msg.sender, mintAmount);
- uint256 calculatedFee = getCalculatedFee(token, amount);
- assetToken.updateExchangeRate(calculatedFee);
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

Only flash loan fees should increase the exchange rate.

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); } ```

Support

FAQs

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

Give us feedback!