Thunder Loan
AI First Flight #7
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Submission Details
Impact: high
Likelihood: high
Invalid

deposit() inflates the exchange rate by a fee that was never paid, making the protocol insolvent and bricking full redemption

wittytiger689

Root + Impact

Description

ThunderLoan.deposit raises the AssetToken exchange rate as though the protocol had received a fee, but a deposit collects no fee — the only transfer in the function moves exactly amount. The rate therefore rises with no matching underlying behind it, so the AssetToken immediately promises more underlying than it holds.

// src/protocol/ThunderLoan.sol
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); // no fee was actually received here
token.safeTransferFrom(msg.sender, address(assetToken), amount); // only `amount` arrives
}

Contrast this with flashloan, where the identical call is legitimate because the borrower really does return amount + fee:

// src/protocol/ThunderLoan.sol - legitimate use
uint256 fee = getCalculatedFee(token, amount);
assetToken.updateExchangeRate(fee); // the borrower repays amount + fee below
...
uint256 endingBalance = token.balanceOf(address(assetToken));
if (endingBalance < startingBalance + fee) {
revert ThunderLoan__NotPaidBack(startingBalance + fee, endingBalance);
}

Risk

Likelihood: High

No attacker is required. This happens on every single deposit through normal protocol usage, and the shortfall compounds with each one.

Impact: High

The AssetToken's liabilities exceed its assets from the very first deposit. Every holder's redeemable claim is larger than the underlying actually held, so the protocol is insolvent and the last depositors to redeem cannot withdraw their funds at all.

Proof of Concept

A single deposit makes the depositor's own claim exceed the contract's balance, and the full redeem reverts.

function test_Finding2_DepositInflatesExchangeRateAndBricksRedeem() public {
_seedPool();
​
uint256 depositAmount = 100e18;
tokenA.mint(liquidityProvider, depositAmount);
​
AssetToken assetToken = thunderLoan.getAssetFromToken(IERC20(address(tokenA)));
uint256 rateBefore = assetToken.getExchangeRate();
​
vm.startPrank(liquidityProvider);
tokenA.approve(address(thunderLoan), type(uint256).max);
thunderLoan.deposit(IERC20(address(tokenA)), depositAmount);
vm.stopPrank();
​
uint256 rateAfter = assetToken.getExchangeRate();
assertGt(rateAfter, rateBefore); // a fee-free deposit raised the rate
​
uint256 shares = assetToken.balanceOf(liquidityProvider);
uint256 claim = (shares * rateAfter) / assetToken.EXCHANGE_RATE_PRECISION();
uint256 held = tokenA.balanceOf(address(assetToken));
​
assertGt(claim, held); // claim exceeds underlying held - insolvent
​
vm.prank(liquidityProvider);
vm.expectRevert();
thunderLoan.redeem(IERC20(address(tokenA)), type(uint256).max); // cannot withdraw
}

Result after a single 100e18 deposit:

exchange rate before deposit: 1000000000000000000 (1.0)
exchange rate after deposit: 1002961474103191183 (1.00296)
underlying actually held: 100000000000000000000 (100 tokenA)
depositor's claim: 100296147410319118300 (100.296 tokenA)

The depositor is owed 0.296 tokenA more than exists in the contract, and redeem(type(uint256).max) reverts.

Recommended Mitigation

Remove the fee accounting from deposit. The exchange rate represents how much underlying each share is worth, so it may only rise when the protocol actually receives underlying it did not have before. A deposit mints shares against the exact amount transferred in, which leaves the ratio unchanged by definition — raising the rate there invents value out of nothing and the gap is paid for by whoever redeems last.

Flash loan repayment is the only event that genuinely adds unbacked underlying to the pool, and flashloan already calls updateExchangeRate with its enforced repayment check. That call site is correct and should remain.

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
Invalidated
Reason: Incorrect statement

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