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

deposit() wrongly calls updateExchangeRate() with a phantom flash-loan fee, inflating the rate without backing and leaving depositors unable to redeem their full deposit

af8520

Description

  • Normal behavior: The AssetToken exchange rate (underlying per share) must only increase when the pool actually earns fees — which happens in flashloan() via updateExchangeRate(fee) after a real fee is paid. A plain deposit() should mint shares at the current rate and leave the rate unchanged.

  • Issue: deposit() calls assetToken.updateExchangeRate(getCalculatedFee(token, amount)) on every deposit, even though no fee is ever collected during a deposit. This inflates the exchange rate by a phantom fee, so from the very first deposit the pool is credited with more underlying than it actually holds.

function deposit(IERC20 token, uint256 amount) external revertIfZero(amount) revertIfNotAllowedToken(token) {
AssetToken assetToken = s_tokenToAssetToken[token];
uint256 mintAmount = (amount * assetToken.EXCHANGE_RATE_PRECISION()) / assetToken.getExchangeRate();
assetToken.mint(msg.sender, mintAmount);
uint256 calculatedFee = getCalculatedFee(token, amount);
@> assetToken.updateExchangeRate(calculatedFee); // BUG: inflates the rate with a fee that was never paid in
token.safeTransferFrom(msg.sender, address(assetToken), amount);
}

Risk

Likelihood: High

  • Triggers on every single deposit(), deterministically, with no special conditions.

Impact: High

  • The pool is insolvent starting from the first deposit: total claimable underlying exceeds the pool's actual balance.

  • Depositors cannot redeem their full deposit — redeem() reverts because the computed payout exceeds the balance. A growing portion of honest LP funds is permanently locked, and the shortfall compounds with every deposit.

Proof of Concept

A single LP deposits 100. Because deposit() inflates the rate by the phantom 0.3 fee, the LP is immediately owed 100.3 while the pool holds only 100, and redeeming the full share balance reverts.

Run forge test --match-contract PoC_DepositInflatesRate -vv:

// SPDX-License-Identifier: MIT
pragma solidity 0.8.20;
import { BaseTest, ThunderLoan } from "./BaseTest.t.sol";
import { AssetToken } from "../../src/protocol/AssetToken.sol";
import { console } from "forge-std/Test.sol";
​
contract PoC_DepositInflatesRate is BaseTest {
address lp = address(0x1111);
function test_DepositInflatesExchangeRate_PoolBecomesInsolvent() public {
vm.prank(thunderLoan.owner());
thunderLoan.setAllowedToken(tokenA, true);
AssetToken assetToken = thunderLoan.getAssetFromToken(tokenA);
​
uint256 amount = 100e18;
tokenA.mint(lp, amount);
vm.startPrank(lp);
tokenA.approve(address(thunderLoan), amount);
thunderLoan.deposit(tokenA, amount);
vm.stopPrank();
​
uint256 shares = assetToken.balanceOf(lp);
uint256 claimable = shares * assetToken.getExchangeRate() / assetToken.EXCHANGE_RATE_PRECISION();
uint256 backing = tokenA.balanceOf(address(assetToken));
console.log("deposited :", amount); // 100e18
console.log("backing :", backing); // 100e18
console.log("claimable :", claimable); // 100.3e18 (insolvent)
assertGt(claimable, backing);
​
vm.prank(lp);
vm.expectRevert(); // cannot redeem full deposit
thunderLoan.redeem(tokenA, shares);
}
}

Output: deposited 100e18 | backing 100e18 | claimable 100.3e18 and redeem reverts.

Recommended Mitigation

The exchange rate must change only when real fees are collected (in flashloan()), never on a deposit. Remove the fee/rate update from deposit():

function deposit(IERC20 token, uint256 amount) external revertIfZero(amount) revertIfNotAllowedToken(token) {
AssetToken assetToken = s_tokenToAssetToken[token];
uint256 mintAmount = (amount * assetToken.EXCHANGE_RATE_PRECISION()) / assetToken.getExchangeRate();
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 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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