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

`ThunderLoan::deposit` wrongly calls `updateExchangeRate`, inflating the rate on deposits and breaking redemption

hopeh

Description

deposit calls updateExchangeRate with a fee computed from the deposited amount, treating a plain liquidity deposit as if it were flash-loan fee income:

function deposit(IERC20 token, uint256 amount) external ... {
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); // @> deposits are NOT fees; this inflates the rate
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

The exchange rate is supposed to rise only when real fees are earned (via flashloan). Here every deposit bumps the rate as though fee income arrived, even though only principal was added.

Risk

Likelihood: High

  • deposit is the normal, permissionless liquidity-provider entry point, called on every deposit.

Impact: High

  • The exchange rate is inflated without matching underlying backing. redeem computes amountUnderlying = amountOfAssetToken * exchangeRate / PRECISION, so redemptions demand more underlying than the pool actually holds. Once the inflation outpaces real reserves, redeem reverts (liquidity providers cannot withdraw — funds frozen), and the protocol's core accounting invariant (assets backing AssetTokens) is broken.

Proof of Concept

// LP deposits 100 token. getCalculatedFee(token,100) returns some fee F.
// deposit() mints AssetTokens AND calls updateExchangeRate(F) -> rate goes up although only 100 principal came in.
// Later redeem() values each AssetToken at the inflated rate -> amountUnderlying exceeds the real balance
// -> transferUnderlyingTo reverts (insufficient balance) -> deposits are stuck.

Recommended Mitigation

Do not update the exchange rate in deposit; only flashloan (which earns real fees) should call updateExchangeRate:

function deposit(IERC20 token, uint256 amount) external ... {
...
assetToken.mint(msg.sender, mintAmount);
// remove: getCalculatedFee + updateExchangeRate
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}
Updates

Lead Judging Commences

ai-first-flight-judge Lead Judge 7 days 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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