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

deposit() inflates the exchange rate with a phantom fee that is never paid in, allowing over-redemption

sub99

deposit inflates the exchange rate with a fee that is never paid in, letting depositors redeem more than the vault holds

Description

deposit should only mint asset tokens proportional to the underlying transferred in; the exchange rate should rise only when real fee revenue arrives (during a flash loan). Instead, deposit computes a flash-loan-style fee and feeds it to updateExchangeRate, even though only amount (and no fee) is actually transferred into the vault.

// ThunderLoan.sol:153-155
uint256 calculatedFee = getCalculatedFee(token, amount);
assetToken.updateExchangeRate(calculatedFee); // @> raises rate as if fee tokens arrived
token.safeTransferFrom(msg.sender, address(assetToken), amount); // @> only `amount`, no fee, is sent

AssetToken.updateExchangeRate (line 89) treats its argument as new backing added to the vault, so the rate increases with zero matching underlying. ThunderLoanUpgraded correctly omits both lines.

Risk

Likelihood:
Triggered by every single deposit — no attacker setup is required; the inflation is automatic and compounding.

Impact:
The redeemable underlying per asset token grows without backing, so the vault becomes progressively under-collateralized. Late depositors and liquidity providers can redeem more underlying than was ever deposited, and the imbalance can be amplified to drain other depositors' funds.

Proof of Concept

Deposit once and observe the exchange rate move above its starting value despite no fee being transferred.

function test_depositInflatesExchangeRateWithoutBacking() public {
AssetToken asset = thunderLoan.getAssetFromToken(tokenA);
vm.startPrank(liquidityProvider);
tokenA.approve(address(thunderLoan), 100e18);
thunderLoan.deposit(tokenA, 100e18);
vm.stopPrank();
assertGt(asset.getExchangeRate(), 1e18); // rate rose with no fee tokens in the vault
}

Recommended Mitigation

Remove the phantom fee accounting from deposit; the exchange rate must change only when real fee revenue is received.

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

Lead Judging Commences

ai-first-flight-judge Lead Judge about 6 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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