Issue M-1: Unsafe type casting of poolValue can malfunction the whole market
Source: #45
Found by
WATCHPUG
Summary
When poolValue is a negative number due to loss in valueChange and funding, the unsafe type casting from int256 to uint256 will result in a huge number close to 2**255 which will revert _rebalancePoolsAndExecuteBatchedActions() due to overflow when multiplied by 1e18 at L163.
Vulnerability Detail
If the funding rate is 100% per year and the EPOCH_LENGTH is 4 days, the funding fee for each epoch can be as much as ~1% on the effectiveValue.
Plus, the loss from valueChange is capped at 99%, but combining both can still result in a negative poolValue at L146.
At L163 uint256 price = uint256(poolValue).div(tokenSupply); the type casting from int256 to uint256 will result in a huge number close to 2**255.
MathUintFloat.div() will overflow when a number as large as 2**255 is multiplied by 1e18.
Impact
_rebalancePoolsAndExecuteBatchedActions will revert and cause the malfunction of the whole market.
Code Snippet
Tool used
Manual Review
Recommendation
Consider adding a new function to properly handle the bankruptcy of a specific pool.
Discussion
JasoonS
We seed the pools initially with sufficient un-extractable capital such that this shouldn't be an issue (it should never get close to 0 - even after millions of years and trillions of transactions that may have rounding down and all users withdrawing their funds).
We could create a safe cast function to check - but we made poolValue an int256 so that it is easier to operate on with other signed integers - not because it is ever possible for it to be negative. So it would be redundant in this case.
moose-code
@JasoonS Want to relook at this. @WooSungD @Stentonian maybe you also have thoughts.
I believe watchpug is explaining something different.
They are saying that poolValue can be negative, as a 99% capped loss of poolValue, in conjunction with a 1% funding fee (imagine the side is very overbalanced), will result in the pool value losing more than 100% in total.
A safe guard would be to check that with BOTH funding and value change, 99% is the maximum a pool can lose in any single iteration.
Given system parameterizations, where epoch length will never be that long and funding rate should never be that high, its unlikely this would be an issue in practice, but likely still worth making a change for.
Let me know if anyone has thoughts
JasoonS
Yes, you're right, went through these too fast.
We've discussed this internally a few times. This point should've made it into the readme.
We could add checks to the epoch length on construction to ensure were safe
JasoonS
Nothing to change here.
The epochs would need to be many days long at least for the funding to be close high enough for this to be an issue in the black swan event of a single price change delta being greater than the max change (33% percent).
I believe this to be an informational issue. We could've made it explicit in the readme. But the Video walkthrough implies that the epoch length would be an hour or shorter.
TLDR if the markets are configured correctly, this is a mathematical impossibility. We have plenty of lee-way with current config.
Issue M-2: An update gap in Chainlink's feed can malfunction the whole market
Source: #42
Found by
WATCHPUG
Summary
The roundId that is used for settling the price change and pushing the latestExecutedEpochIndex forward is strictly limited to be in a precise period of time. When there is no such roundId, the system will freeze and lock everyone out.
Vulnerability Detail
The check at L127 makes it impossible to use a roundId that was created at a later time than relevantEpochStartTimestampWithMEWT + EPOCH_LENGTH.
However, when the EPOCH_LENGTH is larger than the Chainlink feed's heartbeat length, or Chainlink failed to post a feed within the expected heartbeat for whatever reason, then it would be impossible to find a suitable roundId (as it does not exist) to push the epoch forward due to the rather strict limitation for the roundId.
Impact
As a result, the whole system will malfunction and no one can enter or exit the market.
Code Snippet
Tool used
Manual Review
Recommendation
Consider allowing the roundId not to falls into the epoch, and use the previous roundId's price when that's the case:
for (uint32 i = 0; i < lengthOfEpochsToExecute; i++) {
// Get correct data
(, int256 currentOraclePrice, uint256 currentOracleUpdateTimestamp, , ) = chainlinkOracle.getRoundData(oracleRoundIdsToExecute[i]);
// Get Previous round data to validate correctness.
- (, , uint256 previousOracleUpdateTimestamp, , ) = chainlinkOracle.getRoundData(oracleRoundIdsToExecute[i] - 1);
+ (, int256 previousOraclePrice, uint256 previousOracleUpdateTimestamp, , ) = chainlinkOracle.getRoundData(oracleRoundIdsToExecute[i] - 1);
// Check if there was a 'phase change' AND the `_currentOraclePrice` is zero.
if ((oracleRoundIdsToExecute[i] >> 64) > (latestExecutedOracleRoundId >> 64) && previousOracleUpdateTimestamp == 0) {
// NOTE: if the phase changes, then we want to correct the phase of the update.
// There is no guarantee that the phaseID won't increase multiple times in a short period of time (hence the while loop).
// But chainlink does promise that it will be sequential.
// View how phase changes happen here: https://github.com/smartcontractkit/chainlink/blob/develop/contracts/src/v0.7/dev/AggregatorProxy.sol#L335
while (previousOracleUpdateTimestamp == 0) {
// NOTE: re-using this variable to keep gas costs low for this edge case.
latestExecutedOracleRoundId = (((latestExecutedOracleRoundId >> 64) + 1) << 64) | uint64(oracleRoundIdsToExecute[i] - 1);
(, , previousOracleUpdateTimestamp, , ) = chainlinkOracle.getRoundData(latestExecutedOracleRoundId);
}
}
// This checks the price given is valid and falls within the correct window.
// see https://app.excalidraw.com/l/2big5WYTyfh/4PhAp1a28s1
if (
previousOracleUpdateTimestamp >= relevantEpochStartTimestampWithMEWT ||
currentOracleUpdateTimestamp < relevantEpochStartTimestampWithMEWT
- currentOracleUpdateTimestamp >= relevantEpochStartTimestampWithMEWT + EPOCH_LENGTH
) revert InvalidOracleExecutionRoundId({oracleRoundId: oracleRoundIdsToExecute[i]});
+ // If the new roundId does not falls into the epoch, use the prev roundId then
+ if (currentOracleUpdateTimestamp >= relevantEpochStartTimestampWithMEWT + EPOCH_LENGTH) {
+ currentOraclePrice = previousOraclePrice;
+ }
if (currentOraclePrice <= 0) revert InvalidOraclePrice({oraclePrice: currentOraclePrice});
missedEpochPriceUpdates[i] = currentOraclePrice;
relevantEpochStartTimestampWithMEWT += EPOCH_LENGTH;
}Discussion
JasoonS
Thanks - we had a long internal debate discussion about this.
We decided that it is best to make the parameters (such as epoch length) long enough such that this is extremely unlikely to happen.
We have done some extensive latency and heartbeat analysis on chainlink oracles - as well as had an in-details discussion about how gas price spikes can cause delays to prices being pushed on chain (a side note - this is why a large mewt/minimumExecutionWatingTime is required - otherwise a gas price spike/griefing attack would be more feasible). I'll link some of that to this issue in a bit if that is interesting to you.
Anyway - getting back to this issue - we believe it is better to leave the market paused if such an anomaly happens and give us time to analyse what happened. It is a sort of risk protection mechanism. Either we upgrade market for a fix (which will be under timelock), or we deprecate the market.
I think our users will appreciate our prudence.
One thing to consider is that withdrawals also won't be processed in this edge case (maybe a good think?). I'll have another chat with the team on that.
Agree that your solution is pretty benign too since there will just be no price change.
moose-code
@WooSungD would be useful if you could post that graph of chainlink prices on the analysis we did.
moose-code
For more context, a few weeks ago we had detailed disscussion with the chainlink team, as you can't even rely on the hearbeat with certainty.
E.g. the heartbeat of 27sec on polygon still showed outliers where we waited for up to 180 seconds in some cases for a new price because of big gas spikes. This is why we conducted the analysis so carefully, we want to make sure that we don't miss a chainlink price.
However if we do miss a price, the auto deprecation means the system fails very gracefully, the markets are paused and everyone can simply withdraw after a cooldown period.
WooSungD
Here are some graphs showing the distribution of heartbeat (in seconds) for ETH-USD price feed on Chainlink Polygon.
The outliers for the heartbeat mean that our MEWT needs to be longer (longer than max outlier necessarily) to prevent front-running.
The causes of outliers ito heartbeat were network congestion and gas spikes, according to the Chainlink team
moose-code
After chatting with the chainlink team more on this, the one potential attack vector (that seems unrealistic) that I can point out is spamming the polygon chain to the point where it delays the chainlink price update from being mined until the point where no valid price exists.
This would be extremely expensive and simply cause the market to deprecate (no financial gain).
Evert0x
We still think this is a high severity issue as it can make the protocol malfunction
Evert0x
Downgrading to medium severity as it's clear to the judges a large part of the protocol is specifically engineered to handle this case.
rcstanciu
Prior discussion of this issue before the audit can be found here: https://github.com/sherlock-audit/2022-11-float-capital/blob/090c1096aacc0e7dc31bc1d00a82357f9c76fbd4/README.md?plain=1#L163 and https://youtu.be/UjgqyKQSz7s?t=1619
Issue M-3: Funding Rate calculation is not correct
Source: #33
Found by
obront
Summary
According to the docs, the Funding Rate is intended to correspond to the gap between long and short positions that the Float Pool is required to make up. However, as its implemented, the totalFunding is calculated only on the size of the overbalanced position, leading to some unexpected situations.
Vulnerability Detail
According to the comments, totalFunding is meant to be calculated as follows:
totalFunding is calculated on the notional of between long and short liquidity and 2x long and short liquidity.
This makes sense. The purpose of the funding rate is to compensate the Float Pool for the liquidity provided to balance the market.
However, the implementation of this function does not accomplish this. Instead, totalFunding is based only on the size of the overbalancedValue:
uint256 totalFunding = (2 * overbalancedValue * fundingRateMultiplier * oracleManager.EPOCH_LENGTH()) / (365.25 days * 10000);This can be summarized as 2 * overbalancedValue * funding rate percentage * epochs / yr.
This formula can cause problems, because the size of the overbalanced value doesn't necessarily correspond to the balancing required for the Float Pool.
For these examples, let's set:
fundingRateMultiplier = 100(1%)EPOCH_LENGTH() = 3.6525 days(1% of a year)
SITUATION A:
- Overbalanced: LONG
- Long Effective Liquidity: 1_000_000 ether
- Short Effective Liquidity: 999_999 ether
totalFunding = 2 * 1_000_000 ether * 1% * 1% = 200 ether- Amount of balancing supplied by Float = 1mm - 999,999 = 1 ether
SITUATION B:
- Overbalanced: LONG
- Long Effective Liquidity: 1_000 ether
- Short Effective Liquidity: 100 ether
totalFunding = 2 * 1_000 ether * 1% * 1% = 0.2 ether- Amount of balancing supplied by Float = 1000 - 100 = 900 ether
We can see that in Situation B, Float supplied 900X more liquidity to the system, and earned 1000X less fees.
Impact
Funding Rates will not accomplish the stated objective, and will serve to incentivize pools that rely heavily on Float for balancing, while disincentivizing large, balanced markets.
Code Snippet
Tool used
Manual Review, Foundry
Recommendation
Adjust the totalFunding formula to represent the stated outcome. A simple example of how that might be accomplished is below, but I'm sure there are better implementations:
uint256 totalFunding = ((overbalancedValue - underbalancedValue) * fundingRateMultiplier * oracle.EPOCH_LENGTH()) / (365.25 days * 10_000);Discussion
JasoonS
It is acknowledged that this funding rate equation is just a placeholder for now.
This typo of funding rate equation is desired if we want to incentivise market makers to always keep liquidity in the Float pool regardless of market balance.
Our initial implementation was EXACTLY the same as what you wrote in the recommendation (and it is exactly what has been deployed live for the alpha version of the protocol for the last year). But after talks with market makers it became clear that they want 'guaranteed' returns of sorts even if the market is balanced to keep their funds there.
We have (since audit) refined an updated equation that is a hybrid of the two extremes. This is some of the core logic that we'll have to keep iterating on to make float work. It is the magic sauce.
Apologies for that mistake in the comments. The comments also say: This modular function is logical but naive implementation that will likely change somewhat upon more indepth modelling results that are still pending.
TLDR - this is as intended and the shortcomings are known.
Evert0x
Downgrading to informational as the docs on which this issue is based also indicate that it's a placeholder. Issue doesn't make a case for med/high in case the formula makes it to production.
zobront
Escalate for 5 USDC
It seems like quite a stretch to claim that the current implementation is a placeholder. The exact quote in the docs is:
This modular function is logical but naive implementation that will likely change somewhat upon more indepth modelling results that are still pending.
This clearly states that the function is supposed to accomplish what they state it will accomplish. They acknowledge it may change, but specifically lay out what the function should do and claim that it does it.
If saying “this is right but may change somewhat” disqualifies valid issues, then anything that says that should not be in scope. So I feel it is very clear that the report does find a real issue in the code.
Now, I understand that if this was just an issue with the docs, it’d be informational. That’s fair.
But the actual implementation isn’t an “alternative”. It’s a totally invalid way to implement the function that would cause harm to the platform.
The goal of the function is to ensure the Float pool is compensated for the real risk that it is taking on. If it is substantially underpaid (as it would be in many cases with the erroneous formula), it can easily cause the pool to lose funds. The formula doesn't accomplish the objective that is needed from it, and it puts the protocol's own funds at risk.
The fact that, since the audit, they have updated the equation seems to imply that they agree that the implementation in the audit code was untenable.
So it seems clear to me that: a) the issue is a real mismatch between explicitly intended behavior and the code b) it would cause real harm if it was deployed as written
Therefore, I believe a severity of Medium is justified.
sherlock-admin
Escalate for 5 USDC
It seems like quite a stretch to claim that the current implementation is a placeholder. The exact quote in the docs is:
This modular function is logical but naive implementation that will likely change somewhat upon more indepth modelling results that are still pending.
This clearly states that the function is supposed to accomplish what they state it will accomplish. They acknowledge it may change, but specifically lay out what the function should do and claim that it does it.
If saying “this is right but may change somewhat” disqualifies valid issues, then anything that says that should not be in scope. So I feel it is very clear that the report does find a real issue in the code.
Now, I understand that if this was just an issue with the docs, it’d be informational. That’s fair.
But the actual implementation isn’t an “alternative”. It’s a totally invalid way to implement the function that would cause harm to the platform.
The goal of the function is to ensure the Float pool is compensated for the real risk that it is taking on. If it is substantially underpaid (as it would be in many cases with the erroneous formula), it can easily cause the pool to lose funds. The formula doesn't accomplish the objective that is needed from it, and it puts the protocol's own funds at risk.
The fact that, since the audit, they have updated the equation seems to imply that they agree that the implementation in the audit code was untenable.
So it seems clear to me that: a) the issue is a real mismatch between explicitly intended behavior and the code b) it would cause real harm if it was deployed as written
Therefore, I believe a severity of Medium is justified.
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hrishibhat
Escalation accepted.
sherlock-admin
Escalation accepted.
This issue's escalations have been accepted!
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JasoonS
For the record I disagree that this is a vulnerability. This implementation makes some trade-offs.
Anyway, we have made another interim adaptation to the incentives https://github.com/Float-Capital/monorepo/pull/3833 - it also has its own trade-offs just like this implementation.
jacksanford1
From WatchPug:
The formula for funding fee does not take the actual service provided by the float pool, i.e., the amount of matching funds from the float pool, into consideration.
Therefore, in certain cases, the other two pools (l/s) may end up paying more funding fee than expected.
PoC
Given: Funding multipler is 5% APR; Epoch length is 1 day. The long side intended to open a $1M position at 5x leverage, the effectiveValueLong is $5M. There is only $10 position on the short side and $10 liquidity in the float pool. While the float pool can only provide $50 liquidity to the long side, the funding fee charged is: ($5M + $10) * 5% * 5 * 1 day / 1 year
Recommendation The amount of funding fee should be charged based on the amount of liquidity provided by the float pool, ie, $50 in the above case.
jacksanford1
Acknowledged by Float:
We could put a cap on the maximum funding the 'tranche/Float pool' can earn, but how it is now will be a strong incentive for market makers to put more funds to get the two sides in balance again. I'll discuss this more with the team, but I think this is what we decided before. It is true that our system takes some time to respond to massive (relative to the current market size) injections of liquidity into a single side, but in normal running the Float pool should absorb most of that.
Issue M-4: Protocol won't work with USDC even though it is a token specifically mentioned in the docs
Source: #21
Found by
pashov, ctf_sec, 0x52
Summary
The protocol has requirements for values (for example 1e18) that would be too big if used with a 6 decimals token like USDC - USDC is mentioned as a token that will be used in the docs
Vulnerability Detail
For the mint functionality, a user has to transfer at least 1e18 tokens so that he can mint pool tokens - if (amount < 1e18) revert InvalidActionAmount(amount);. If the paymentToken used was USDC (as pointed out in docs), this would mean he would have to contribute at least 1e12 USDC tokens (more than a billion) which would be pretty much impossible to do. There is also another such check in MarketExtended::addPoolToExistingMarket with require(initialActualLiquidityForNewPool >= 1e12, "Insufficient market seed"); - both need huge amounts when using a low decimals token like USDC that has 6 decimals.
Impact
The protocol just wouldn't work at all in its current state when using a lower decimals token. Since such a token was mentioned in the docs I set this as a High severity issue.
Code Snippet
https://github.com/sherlock-audit/2022-11-float-capital/blob/main/contracts/market/template/MarketExtended.sol#L125 https://github.com/sherlock-audit/2022-11-float-capital/blob/main/contracts/market/template/MarketCore.sol#L265
Tool used
Manual Review
Recommendation
Drastically lower the require checks so they can work with tokens with a low decimals count like USDC
Discussion
JasoonS
I feel really silly that I didn't think of that when I wrote the readme - we have spoken about it came up many times in the alpha version audit that we did last year. We have no intention of using USDC anytime soon. We have been using DAI exclusively. My mistake - I thought why not just have the option for insurance sake and mention USDC (since it is the only other token remotely likely that we might use).
This most certainly isn't high - it is in the constructor that we'd immediately notice that (of course as I mentioned we have been aware of this for a long time). The rest of the mechanism works with USDC - just those minimums will need to be adjusted.
So, "Bug in the readme?" I'd say this isn't a vulnerability at all!
We could fetch the decimals from the payment token on initialization, but honestly don't think the extra complexity is justified in our situation.
Evert0x
As USDC was explicitly mentioned by the protocol we would like to reward this finding.
JasoonS
Fix PR: https://github.com/Float-Capital/monorepo/pull/3812 and relevant comment
Relevant comment: sherlock-audit/2022-11-float-capital#10 (comment)
jacksanford1
Note: Fix accepted by WatchPug