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

deposit() incorrectly updates exchange rate even though no fee is paid

phat1911

Root + Impact

Description

Liquidity providers should deposit underlying tokens and receive AssetToken shares representing their deposited principal. Deposits should not generate protocol yield because no borrower paid a flashloan fee.

However, ThunderLoan.deposit() calculates a flashloan fee from the deposit amount and calls assetToken.updateExchangeRate(calculatedFee). This creates fake yield that was never paid into the vault. The exchange rate becomes larger than the actual backing balance, causing users to receive fewer shares on later deposits and potentially making full redemptions revert because the vault does not hold enough underlying.

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); // @> fake fee is added during deposit
​
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

Risk

Likelihood:

  • This occurs on every successful deposit in ThunderLoan.sol.

  • No malicious action is required; normal LP deposits trigger the accounting error.

Impact:

  • The exchange rate becomes higher than the vault’s real backing.

  • LP redemptions can fail or later users can be unfairly diluted.

Proof of Concept

function testDepositCreatesFakeYieldAndBreaksRedeem() public {
thunderLoan.setAllowedToken(tokenA, true);
AssetToken assetToken = thunderLoan.getAssetFromToken(tokenA);
​
address lp = address(1);
uint256 amount = 1000e18;
​
tokenA.mint(lp, amount);
​
vm.startPrank(lp);
tokenA.approve(address(thunderLoan), amount);
thunderLoan.deposit(tokenA, amount);
​
// Exchange rate increased even though no flashloan fee was paid.
assertGt(assetToken.getExchangeRate(), assetToken.EXCHANGE_RATE_PRECISION());
​
// LP owns 1000 shares, but those shares now claim more than 1000 tokens.
// The vault only has 1000 tokens, so full redeem reverts.
vm.expectRevert();
thunderLoan.redeem(tokenA, type(uint256).max);
vm.stopPrank();
}

Recommended Mitigation

- 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 5 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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