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

[H-2] Exchange Rate Update During Deposit Breaks Asset Solvency Guarantees

vegazeronos

Exchange Rate Update During Deposit Breaks Asset Solvency Guarantees

Description

  • Deposits are expected to be neutral accounting operations: assets are exchanged for shares using the current exchange rate without modifying the underlying valuation model. However, updateExchangeRate is called during the deposit flow, which violates this principle.

    By modifying the exchange rate during deposits, the protocol effectively redistributes value between existing and new shareholders. This leads to artificial inflation or deflation of share value and breaks the assumption that shares represent a proportional claim on underlying assets.

    In extreme cases, the protocol may report sufficient balances while being unable to honor redemptions, resulting in a loss of user trust and functional insolvency.

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);
}

Risk

Likelihood:

  • This issue triggers deterministically on every deposit call that invokes updateExchangeRate. No attacker action or special conditions are required beyond normal protocol usage.

Impact:

  • High — Protocol Insolvency and Failed Redemptions.
    Updating the exchange rate during deposits distorts the asset-to-share ratio, potentially leading to situations where users cannot redeem their deposited assets in full. Over time, this can render the protocol insolvent and break core vault invariants.

Proof of Concept


Please add this test function into the code test/ThunderLoanTest.t.sol

function testDepositAndWithdraw() public setAllowedToken hasDeposits {
/**
* actor: liquidityProvider
* token: tokenA
*/
AssetToken asset = thunderLoan.getAssetFromToken(tokenA);
console.log("asset token liquidityProvider before withdraw: ", asset.balanceOf(liquidityProvider));
console.log("totalSupply assetToken: ", asset.totalSupply());
vm.startPrank(liquidityProvider);
thunderLoan.redeem(tokenA, asset.balanceOf(liquidityProvider));
vm.stopPrank();
console.log("asset token liquidityProvider after withdraw: ", asset.balanceOf(liquidityProvider));
assertEq(tokenA.balanceOf(liquidityProvider),DEPOSIT_AMOUNT); //balance terakhir harus sama dengan balance deposit
}

Recommended Mitigation

Please avoid updateing the exchangeRate when do the deposit OR if insist to apdate it, please update the logic of the updateExchangeRate

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);
}
Updates

Lead Judging Commences

ai-first-flight-judge Lead Judge about 9 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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