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

`deposit()` inflates the exchange rate on a fee-less deposit, causing insolvency and letting a depositor steal from earlier LPs

codebycinar

Description

Normal behavior: the AssetToken exchange rate should rise only when the pool actually earns flash-loan fees, so redeemable underlying always matches the underlying held.

Specific issue: deposit() calls assetToken.updateExchangeRate(calculatedFee) even though a deposit earns no fee. This bumps the rate (newRate = oldRate * (totalSupply + fee) / totalSupply) with no matching underlying entering the vault, so total claimable underlying exceeds the underlying actually held — instant under-collateralization.

// deposit()
uint256 calculatedFee = getCalculatedFee(token, amount);
assetToken.updateExchangeRate(calculatedFee); // @> deposit earns no fee, yet inflates the rate
token.safeTransferFrom(msg.sender, address(assetToken), amount);

Risk

Likelihood:

  • Every deposit triggers it; no special conditions.

Impact:

  • (a) A lone LP who deposits 1000e18 then cannot redeem it back (claim 1003e18 > vault 1000e18). (b) A later depositor redeems more than they put in, draining earlier LPs' principal. Both reproduced. (Confirmed as a real bug: the upgraded contract removes this updateExchangeRate call from deposit.)

Proof of Concept

test/unit/AccountingAudit.t.sol (PASSES). testDepositThenRedeemStealsFromEarlierLp: attacker deposits at the old rate, their own deposit bumps the rate, they redeem at the higher rate for a profit taken from LP1, who can then no longer fully redeem.

Run: forge test --match-contract AccountingAudit -vv

lp2 deposited : 1000000000000000000000
lp2 got on redeem : 1001502246630054917247 <- +1.50e18 profit, drained from LP1
(then LP1 full redeem reverts: insufficient underlying)

Recommended Mitigation

Do not update the exchange rate on deposit (the rate should change only on earned flash-loan fees), exactly as ThunderLoanUpgraded does.

function deposit(IERC20 token, uint256 amount) external ... {
...
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 2 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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