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

ThunderLoan. deposit error calling updateExchangeRate resulted in exchange rate inflation and fund theft

limianyu

Root + Impact

Description

  • Normal behavior: Users call deposit to supply allowed underlying tokens and receive AssetToken shares in return. The exchange rate should reflect the actual underlying assets held by the AssetToken contract.

  • Specific issue: The deposit function calculates a calculatedFee and calls assetToken.updateExchangeRate(calculatedFee), but the user only transfers the principal amount into the AssetToken contract. No additional fee is actually collected or transferred. This artificially inflates the exchange rate without a corresponding increase in real assets.

// Root cause in the codebase with @> marks to highlight the relevant section
uint256 calculatedFee = getCalculatedFee(token, amount);
//@> assetToken.updateExchangeRate(calculatedFee);
token.safeTransferFrom(msg.sender, address(assetToken), amount);

Risk

Likelihood:

  • Every successful deposit call where calculatedFee > 0 triggers this behavior.

  • The issue occurs under normal operation conditions, requiring no special user action.Impact:

  • The AssetToken exchange rate is artificially inflated, meaning each AssetToken is now redeemable for more underlying tokens than the pool actually holds.

  • Early depositors can immediately call redeem to extract more underlying tokens than they deposited, effectively stealing funds from subsequent depositors.

  • If a large portion of the pool is withdrawn, the last users to redeem will be unable to withdraw their funds due to insufficient underlying token balance.

Proof of Concept

// 1. Alice deposits 1000 underlying tokens (assuming 18 decimals).
// 2. calculatedFee is computed as e.g., 3e18.
// 3. updateExchangeRate(3e18) inflates the exchange rate from 1e18 to 1.003e18.
// 4. Alice immediately redeems her 1000 AssetTokens.
// 5. Alice receives 1000 * 1.003 = 1003 underlying tokens.
// 6. Alice profits 3 tokens, which are stolen from future depositors or the pool's liquidity.

Recommended Mitigation

Exchange rates should not be updated without actual fees being charged. If you wish to charge a deposit handling fee, you should ask the user to transfer the amount and pay an additional calculatedFee, or deduct the fee from the amount before casting the AssetToken, and ensure that the updateExchangeRate is only called when the real assets increase.

- 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 8 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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