Thunder Loan
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Submission Details
Severity: high
Valid

deposit() inflates the exchange rate with a fee that was never paid: deposit+redeem cycle drains LP principal

clumsybeary

Description

Normal behavior: deposit(amount) should mint AssetToken shares 1:1 at the current exchange rate and transfer exactly amount of underlying into the pool. The exchange rate should only increase when a flash-loan fee is actually collected.

The issue: deposit() computes a flash-loan fee for the deposit amount and calls updateExchangeRate(calculatedFee) (ThunderLoan.sol:153-154), raising the exchange rate as if a fee had been collected — but deposit() only pulls amount from the user; no fee is ever transferred. The rate bump therefore creates unbacked share value: the depositor mints shares at the old rate and immediately redeems them at the inflated rate, extracting value from existing LPs in a single transaction.

// ThunderLoan.sol
function deposit(IERC20 token, uint256 amount) external ... {
uint256 exchangeRate = assetToken.getExchangeRate();
uint256 mintAmount = (amount * assetToken.EXCHANGE_RATE_PRECISION()) / exchangeRate;
assetToken.mint(msg.sender, mintAmount);
@> uint256 calculatedFee = getCalculatedFee(token, amount); // fee for a loan that never happened
@> assetToken.updateExchangeRate(calculatedFee); // rate rises as if fee was paid
token.safeTransferFrom(msg.sender, address(assetToken), amount); // only amount arrives — no fee
}
​
// AssetToken.sol:89
uint256 newExchangeRate = s_exchangeRate * (totalSupply() + fee) / totalSupply();

Net profit per cycle ~= 0.003 * A^2 / (V + A) where A = attacker capital (external flash loan, e.g. Aave ~0.09%), V = victim TVL. With A = 100x V the attacker extracts ~30% of LP principal per cycle; the cycle is repeatable and the victim set (future depositors/remaining LPs) is a structural part of the protocol.

Risk

Likelihood: High.

  • Reason 1: Any user can execute the cycle whenever the pool holds liquidity — no privilege, no victim mistake; capital is obtainable from any external flash-loan provider.

  • Reason 2: Works at an honest oracle price (no manipulation needed); nothing in the protocol blocks or deters the cycle.

Impact:

  • Impact 1: Direct transfer of LP principal to the attacker (~0.3% of attack size squared over supply; measured ~30% of a 1,000-token pool in one cycle with 100,000-token capital).

  • Impact 2: After the cycle, total share claims exceed the pool balance — full redemption becomes impossible for the tail of LP redemptions — earlier redeemers still get partial value out, but the last redeemers' transactions revert (ERC20: transfer amount exceeds balance) and recover nothing.

Proof of Concept

Foundry test: test/poc/PocGhostFee.t.sol (PoC file added under test/poc/ in the contest repo). Victim deposits 1,000e18 tokenA; attacker (100,000e18 capital, simulating an external flash loan) deposits and redeems in one transaction:

attacker profit (tokenA): 297911943209607577268
pool remaining after attack (tokenA): 702088056790392422732
victim deposited (tokenA): 1000000000000000000000

Actual vs expected: attacker profit 297.91e18 (closed-form estimate 297.03e18, 0.3% deviation); victim's full redeem REVERTS — expected full recovery of 1,000e18, actual recovery impossible. Note: the upgraded implementation (ThunderLoanUpgraded.sol) deletes these two lines, corroborating that this is a defect.

Recommended Mitigation

Remove the phantom fee accounting from deposit():

function deposit(IERC20 token, uint256 amount) external ... {
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);
}Root + Impact

Description

  • Describe the normal behavior in one or more sentences

  • Explain the specific issue or problem in one or more sentences

// Root cause in the codebase with @> marks to highlight the relevant section

Risk

Likelihood:

  • Reason 1 // Describe WHEN this will occur (avoid using "if" statements)

  • Reason 2

Impact:

  • Impact 1

  • Impact 2

Proof of Concept

​

Recommended Mitigation

- remove this code
+ add this code
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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