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

ThunderLoan::deposit updates the exchange rate with a fee nobody paid, so liquidity providers cannot redeem in full

second_opinion

Root + Impact

Description

  • Flash loan fees are meant to raise the AssetToken exchange rate, so liquidity providers earn interest only on fees that borrowers have actually paid.

  • `deposit` calls `getCalculatedFee` and `assetToken.updateExchangeRate(calculatedFee)` on every deposit, although no flash loan happened and no fee was paid. The exchange rate goes up while the underlying balance of the AssetToken does not, so each asset token is worth more on paper than the pool really holds.

function deposit(IERC20 token, uint256 amount) external revertIfZero(amount) revertIfNfunction 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);
}otAllowedToken(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);
}// Root cause in the codebase with @> marks to highlight the relevant section

Risk

Likelihood:

  • It happens on the very first deposit of any allowed token, no attacker and no special state needed.

  • Every later deposit widens the gap between the exchange rate and the real balance.

Impact:

  • A liquidity provider who redeems all of their asset tokens is owed more underlying than the pool holds, so the transfer reverts and the funds are stuck until other users add liquidity.

  • The pool is insolvent from the start: the last providers to withdraw cannot get their full deposit back.

Proof of Concept

The test lets the owner allow tokenA and a liquidity provider deposit 100 tokens. No flash loan was taken, yet the exchange rate is already above 1e18, while the AssetToken holds exactly the 100 deposited tokens. When the provider redeems all asset tokens, the protocol tries to pay out about 100.3 tokens, which the pool does not have, so the call reverts.

The test lets the owner allow tokenA and a liquidity provider deposit 100 tokens. No flash loan was taken, yet the exchange rate is already above 1e18, while the AssetToken holds exactly the 100 deposited tokens. When the provider redeems all asset tokens, the protocol tries to pay out about 100.3 tokens, which the pool does not have, so the call reverts.

function test_R1_depositInflatesExchangeRateAndBlocksRedeem() public {
_allow(); // owner allows tokenA
_deposit(lp, 100e18); // LP deposits 100 tokens
AssetToken asset = thunderLoan.getAssetFromToken(tokenA);
​
assertGt(asset.getExchangeRate(), 1e18); // rate went up, no flash loan happened
assertEq(tokenA.balanceOf(address(asset)), 100e18); // pool holds only the deposit
​
vm.startPrank(lp);
vm.expectRevert(); // owed 100.3e18, pool holds 100e18
thunderLoan.redeem(tokenA, 100e18);
vm.stopPrank();
}

Recommended Mitigation

The exchange rate must only change when a fee is really collected, which happens in `flashloan`. Remove the fee calculation and the exchange rate update from `deposit`.

The exchange rate must only change when a fee is really collected, which happens in `flashloan`. Remove the fee calculation and the exchange rate update from `deposit`.

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);
}- remove this code
+ add this code
Updates

Lead Judging Commences

ai-first-flight-judge Lead Judge about 2 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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