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

deposit() wrongly calls updateExchangeRate, inflating the AssetToken rate without any earned fee

adelfriedkhol

Root + Impact

deposit() calls assetToken.updateExchangeRate(calculatedFee) on every deposit. The exchange rate is meant to rise only from earned flash-loan fees. Crediting it on deposits records yield that was never earned, breaks the deposit/redeem round-trip, and eventually leaves the pool under-collateralized so later redemptions cannot be honored.

Description

function deposit(IERC20 token, uint256 amount) external ... {
...
assetToken.mint(msg.sender, mintAmount);
uint256 calculatedFee = getCalculatedFee(token, amount);
assetToken.updateExchangeRate(calculatedFee); // @> wrong: inflates the rate on a deposit
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

updateExchangeRate computes newRate = oldRate * (totalSupply + fee) / totalSupply. Feeding it a fee on every deposit raises the rate even though no flash-loan fee was actually collected, so the AssetToken rate diverges upward from the pool’s real token backing.

Risk

Likelihood: High

  • Triggers on every single deposit; no special conditions.

Impact: High

  • The exchange rate overstates the pool’s backing, so the pool becomes under-collateralized. Later redeem() calls compute an amountUnderlying larger than the pool holds and revert — LP principal is frozen.

  • In some sequences a depositor can redeem for more underlying than they deposited, siphoning value from other LPs.

Proof of Concept

  1. A user deposits amount; updateExchangeRate bumps the rate as if a fee had been earned.

  2. Redeeming the same position now requires more underlying than was deposited (rate > start with zero real fee income).

  3. Repeated deposits compound the inflation until the final redeemers cannot withdraw.

Recommended Mitigation

Only update the exchange rate when a real fee is collected (inside flashloan()), never on deposit():

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 19 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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