Thunder Loan
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Submission Details
Severity: high
Valid

Erroneous AssetToken::updateExchangeRate call in ThunderLoan::deposit inflates the exchange rate with no backing, making the protocol insolven

bhavyajain0718design

Root + Impact

Description


  • In ThunderLoan.sol::deposit(), after minting assetToken shares to the
    depositor at the current exchange rate, the function calls assetToken.updateExchangeRate
    (calculatedFee) using getCalculatedFee(token, amount) — the exact same formula
    used to price a flash loan fee. A plain deposit is not a flash loan and pays no fee, yet this call raises
    AssetToken.sol::s_exchangeRate for every AssetToken holder as if a fee of that size had
    just been paid into the pool.

  • No extra underlying tokens are ever transferred in to back that increase — deposit()’s only
    transfer is token.safeTransferFrom(msg.sender, address(assetToken), amount
    ), i.e. exactly the deposited amount, never amount + fee. So immediately after any de‑
    posit, the value the protocol believes it owes LPs (s_exchangeRate * totalSupply /
    EXCHANGE_RATE_PRECISION) exceeds what AssetToken actually holds (token.balanceOf
    (address(assetToken))) by exactly calculatedFee — and this gap grows with every
    subsequent deposit.

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

Impact :

Insolvency: the protocol’s internal accounting (exchange rate × supply) diverges
from the real token balance backing it. ‑ Denial of service on redeem(): LPs — including the
very first depositor — can be unable to withdraw their full balance, because AssetToken::
transferUnderlyingTo reverts once the requested amount exceeds the contract’s real balance.
‑ Fee‑skimming between LPs: because the inflated exchange rate is shared across the whole
AssetToken supply, a “just‑in‑time” LP who deposits right before a real flash‑loan fee lands, then
redeems right after, walks away with a share of value that should belong to LPs who supplied liquidity
earlier, diluting long‑term depositors.

Proof of Concept

Proof of Concept: Add the following test to ThunderLoanTest.t.sol (uses the existing
setAllowedToken modifier and AMOUNT/liquidityProvider fixtures):
1 + function testDepositInflatesExchangeRateBeyondBacking() public
setAllowedToken {
2 + tokenA.mint(liquidityProvider, AMOUNT);
3 +
4 + vm.startPrank(liquidityProvider);
5 + tokenA.approve(address(thunderLoan), AMOUNT);
6 + thunderLoan.deposit(tokenA, AMOUNT);
7 +
8 + // deposit()'s own updateExchangeRate() call inflated
s_exchangeRate by
9 + // `calculatedFee`, but AssetToken never received that extra
underlying —
10 + // so redeeming everything back reverts.
11 + vm.expectRevert();
12 + thunderLoan.redeem(tokenA, type(uint256).max);
13 + vm.stopPrank();
14 + }
​

Recommended Mitigation

Remove the getCalculatedFee/updateExchangeRate call
from deposit() entirely — a deposit should only mint shares at the current exchange rate. The
exchange rate should increase only when a real fee is actually paid into the AssetToken, i.e. inside
flashloan(). This is exactly what ThunderLoanUpgraded.sol::deposit() already does
— confirm this fix is preserved in the deployed implementation.
1 function deposit(IERC20 token, uint256 amount) external revertIfZero(
amount) revertIfNotAllowedToken(token) {
2 AssetToken assetToken = s_tokenToAssetToken[token];
3 uint256 exchangeRate = assetToken.getExchangeRate();
4 uint256 mintAmount = (amount * assetToken.EXCHANGE_RATE_PRECISION
()) / exchangeRate;
5 emit Deposit(msg.sender, token, amount);
6 assetToken.mint(msg.sender, mintAmount);
7 - uint256 calculatedFee = getCalculatedFee(token, amount);
8 - assetToken.updateExchangeRate(calculatedFee);
9 token.safeTransferFrom(msg.sender, address(assetToken), amount);
10 }
​
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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