0x3b - `burnSharesToWithdrawEarnings` burns before math, causing the share value to increase

[sherlock-admin4]

0x3b

high

burnSharesToWithdrawEarnings burns before math, causing the share value to increase

Summary

The burnSharesToWithdrawEarnings function burns shares before calculating the share price, resulting in an increase in share value and causing users to be overpaid.

Vulnerability Detail

When burnSharesToWithdrawEarnings burns shares and subsequently calculates the principal per share, the share amount is reduced but the principal remains the same, leading to a decrease in the sharesExchangeRateInverse, which increases the principal paid.

Principal is calculated using _valueOfUnderlying, where the formula is:

uint256 principalTokenValueToWithdraw = (amount * 1e36) / sharesExchangeRateInverse();

The problem arises in sharesExchangeRateInverse which uses the reduced share count:

return  1e72 / sharesExchangeRate();

Where sharesExchangeRate is defined as:

rate_ = (poolTotalEstimatedValue * 1e36) / poolSharesToken.totalSupply();

Example:

• 1k shares and 10k principal.

1. Alice withdraws 20% of the shares.
2. 200 shares are burned, reducing the supply to 800.
3. Calculation for principal:

rate_ = (10_000e18 * 1e36) / 800e18 = 1.25e37
sharesExchangeRateInverse = 1e72 / 1.25e37 = 8e34
principalTokenValueToWithdraw = 200e18 * 1e36 / 8e34 = 2500e18

4. Alice withdraws 25% of the pool's principal, despite owning only 20% of the shares.

Impact

This flaw results in incorrect calculations, allowing some users to withdraw more than their fair share, potentially leading to insolvency.

Code Snippet

poolSharesToken.burn(msg.sender, _amountPoolSharesTokens);
uint256 principalTokenValueToWithdraw = _valueOfUnderlying(
    _amountPoolSharesTokens,
    sharesExchangeRateInverse()
);

Tool used

Manual Review

Recommendation

To ensure accurate withdrawal amounts, calculate principalTokenValueToWithdraw before burning the shares.

[sherlock-admin2]

The protocol team fixed this issue in the following PRs/commits:
teller-protocol/teller-protocol-v2-audit-2024#11

[sherlock-admin2]

The Lead Senior Watson signed off on the fix.