Thunder Loan
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Submission Details
Severity: high
Valid

deposit() calls updateExchangeRate on a plain deposit, inflating the exchange rate without earned fees and breaking redemptions

hopeh

Description

deposit() mints the depositor their AssetTokens and then bumps the pool's exchange rate as if a flash-loan fee had just been earned:

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;
assetToken.mint(msg.sender, mintAmount);
uint256 calculatedFee = getCalculatedFee(token, amount);
assetToken.updateExchangeRate(calculatedFee); // <-- inflates the rate on a plain deposit
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

The exchange rate is meant to rise only when the pool actually earns fees — i.e. from flash loans (flashloan() already calls updateExchangeRate(fee)). A deposit earns the pool nothing; it only adds principal, minting AssetTokens in proportion to the current rate. Calling updateExchangeRate(calculatedFee) here ratchets the rate up with a fee that was never collected.

Two consequences follow:

  1. Redemptions become undercollateralised. redeem pays amountOfAssetToken * exchangeRate / PRECISION. Because the rate is inflated beyond the pool's real underlying / assetTokenSupply ratio, the total redeemable value exceeds the underlying the pool actually holds. The last liquidity providers to redeem find the pool short and their transferUnderlyingTo reverts — their funds are effectively locked.

  2. Value is transferred from later depositors to earlier ones. Every deposit ratchets the rate higher, so earlier depositors' AssetTokens redeem for more underlying than they contributed, funded by later depositors' principal.

ThunderLoanUpgraded.deposit removes this updateExchangeRate call entirely, confirming it is unintended.

Risk

Impact: High. The exchange rate — the protocol's core accounting primitive — is inflated without backing assets, leading to locked/undercollateralised redemptions and value leakage between LPs.

Likelihood: High. It triggers on every single deposit, on the primary liquidity-provider path, with no attacker involvement.

Proof of Concept

function test_depositInflatesExchangeRate() public {
uint256 rate0 = assetToken.getExchangeRate();
​
vm.startPrank(lp);
token.approve(address(thunderLoan), 100e18);
thunderLoan.deposit(token, 100e18); // a plain deposit; no flash loan has occurred
vm.stopPrank();
​
uint256 rate1 = assetToken.getExchangeRate();
​
// EXPECTED: a deposit adds principal and AssetTokens in the same ratio -> rate unchanged.
// ACTUAL: the rate was bumped by a phantom "fee".
assertGt(rate1, rate0);
​
// The pool now owes more than it holds:
uint256 redeemable = assetToken.totalSupply() * rate1 / assetToken.EXCHANGE_RATE_PRECISION();
assertGt(redeemable, token.balanceOf(address(assetToken))); // undercollateralised
}

Expected: depositing does not change the exchange rate. Actual: the rate rises on every deposit, so the pool becomes unable to honour all redemptions.

Recommended Mitigation

Remove the updateExchangeRate call from deposit (as ThunderLoanUpgraded does). The exchange rate must change only when the pool's underlying balance changes relative to the AssetToken supply — i.e. when a flash-loan fee is actually collected — not on deposits, which add principal and AssetTokens in the same proportion:

assetToken.mint(msg.sender, mintAmount);
token.safeTransferFrom(msg.sender, address(assetToken), amount);
// no updateExchangeRate here
Updates

Lead Judging Commences

ai-first-flight-judge Lead Judge about 1 hour 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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