Lines of code

https://github.com/code-423n4/2024-07-reserve/blob/3f133997e186465f4904553b0f8e86ecb7bbacbf/contracts/p1/RToken.sol#L508-L516 https://github.com/code-423n4/2024-07-reserve/blob/3f133997e186465f4904553b0f8e86ecb7bbacbf/contracts/p1/RToken.sol#L160-L190

Vulnerability details

The Redeem() and redeemTo() functions in the RToken contract allow users to redeem their RTokens for the underlying basket of collateral tokens. During the redemption process, the basketsNeeded variable is updated to reflect the reduced number of baskets required for collateralization.

However, the calculation of amtBaskets in the _scaleDown() function, is called by both redeem() and redeemTo(). This leads to incorrect accounting of the basketsNeeded value, affecting the overall stability and collateralization of the RToken system.

Arises in the _scaleDown() function in RToken.sol:508-516

function _scaleDown(address account, uint256 amtRToken) private returns (uint192 amtBaskets) {
    // D18{BU} = D18{BU} * {qRTok} / {qRTok}
    amtBaskets = basketsNeeded.muluDivu(amtRToken, totalSupply()); // FLOOR
    emit BasketsNeededChanged(basketsNeeded, basketsNeeded - amtBaskets);
    basketsNeeded -= amtBaskets;

    // Burn RToken from account; reverts if not enough balance
    _burn(account, amtRToken);
}

The calculation of amtBaskets uses basketsNeeded.muluDivu(amtRToken, totalSupply()), which may not accurately reflect the number of baskets to be deducted based on the redeemed RToken amount.

Impact

The basketsNeeded variable, which represents the number of baskets required for full collateralization, may not be updated correctly during redemptions. This can result in the RToken system believing it has more or fewer baskets than it actually does.
If the basketsNeeded value is not reduced accurately during redemptions, the RToken system may not maintain the expected level of collateralization.
The basketsNeeded value is used in various calculations, such as determining the exchange rate between RTokens and the underlying basket. Inaccuracies in basketsNeeded can lead to incorrect exchange rates, affecting the value of RTokens and the fairness of redemptions.

Proof of Concept

Let's say:

Alice holds a significant amount of RTokens and decides to redeem them using the redeem() function.
The redeem() function calls the _scaleDown() function to update the basketsNeeded value based on the redeemed amount.
However, due to the incorrect calculation of amtBaskets in _scaleDown(), the basketsNeeded value is not reduced accurately.
As a result, the RToken system now has an inaccurate basketsNeeded value, which may not reflect the true number of baskets required for collateralization.
This inaccuracy can lead to improper collateralization, incorrect exchange rate calculations, and potential instability in the RToken system.

Tools Used

Manual review

Recommended Mitigation Steps

Update the calculation to reflect the number of baskets to be deducted based on the redeemed RToken amount. By calculating amtBaskets as amtRToken.muluDivu(basketsNeeded, totalSupply()), the function will accurately determine the number of baskets to be deducted based on the redeemed RToken amount.

function _scaleDown(address account, uint256 amtRToken) private returns (uint192 amtBaskets) {
-    amtBaskets = basketsNeeded.muluDivu(amtRToken, totalSupply()); // FLOOR
+    amtBaskets = amtRToken.muluDivu(basketsNeeded, totalSupply()); // FLOOR
    emit BasketsNeededChanged(basketsNeeded, basketsNeeded - amtBaskets);
    basketsNeeded -= amtBaskets;

    _burn(account, amtRToken);
}

Assessed type

Math

code-423n4 / 2024-07-reserve-validation

Inaccurate BasketsNeeded Update in _scaleDown() Function Compromises RToken Collateralization and Stability #86