Thunder Loan
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Submission Details
Severity: high
Valid

deposit() incorrectly inflates the exchange rate, breaking redeem solvency

soles

Root + Impact

Description

The exchange rate of an AssetToken is meant to increase only when a flash loan generates real fees, distributing that yield to depositors. It should never increase on a plain deposit, since a deposit adds no yield — it just moves the user's own funds in. The problem is that deposit() calls updateExchangeRate() with a "fee" computed from the deposited amount, inflating the rate as if yield had been earned. This makes the protocol believe it owes more underlying than it actually holds.

function deposit(IERC20 token, uint256 amount) external ... {
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); // @> inflates rate on a plain deposit
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

Risk

Likelihood:

  • Occurs on every single deposit — the rate is inflated each time a user deposits.

Impact:

  • The exchange rate is inflated without real yield, so the protocol accounts for more underlying than it holds.

  • redeem() computes payouts from the inflated rate, so late redeemers cannot withdraw — the pool becomes insolvent and funds are effectively locked/lost.

Proof of Concept

A single deposit raises the exchange rate from 1e18 to 1.003e18 (the 0.3% fee) with no flash loan and no real yield.

function test_PoC_DepositInflatesExchangeRate() public {
AssetToken assetToken = thunderLoan.setAllowedToken(tokenA, true);
uint256 rateBefore = assetToken.getExchangeRate(); // 1e18
​
uint256 amount = 100e18;
tokenA.approve(address(thunderLoan), amount);
thunderLoan.deposit(tokenA, amount);
​
uint256 rateAfter = assetToken.getExchangeRate(); // 1.003e18
assertGt(rateAfter, rateBefore); // rate inflated by a plain deposit
}
// Logs: rate 1.000e18 -> 1.003e18 with no flash loan

Recommended Mitigation

The exchange rate must only increase when real fees are earned (in flashloan()). Remove the updateExchangeRate call from deposit().

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);
}
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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