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

deposit() updates the exchange rate on every deposit, making the pool insolvent so LPs cannot redeem

dngr2

Root + Impact

Liquidity providers deposit a token and receive AssetTokens whose value grows as the exchange rate rises from flash-loan fees the protocol actually earns.

ThunderLoan::deposit calls AssetToken::updateExchangeRate on every deposit, even though a deposit earns no fee. The rate is inflated with money that was never collected, so the redeemable underlying (shares * rate / precision) becomes larger than the tokens the AssetToken actually holds. The pool is insolvent from the first deposit and LPs cannot redeem.

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); // no fee was earned on a deposit
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

Risk

Likelihood: High

  • Triggers on every single deposit — normal, intended protocol usage, no special conditions.

Impact: High

  • The redeemable value exceeds tokens held, so redemptions revert and the last LPs are permanently bricked. The protocol is insolvent by construction.

Proof of Concept

A single LP deposits, then cannot redeem their own only deposit:

function test_F1_depositInflatesRate_blocksRedeem() public allowTokenA {
uint256 amount = 100e18;
tokenA.mint(lp, amount);
vm.startPrank(lp);
tokenA.approve(address(thunderLoan), amount);
thunderLoan.deposit(tokenA, amount);
AssetToken asset = thunderLoan.getAssetFromToken(tokenA);
uint256 shares = asset.balanceOf(lp);
assertGt(asset.getExchangeRate(), 1e18); // rate already inflated by the deposit
vm.expectRevert(); // redeeming the only deposit reverts
thunderLoan.redeem(tokenA, shares);
vm.stopPrank();
}

Recommended Mitigation

Remove the fee/exchange-rate update from deposit; the rate must only change when a fee is genuinely earned in flashloan.

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 4 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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