Bauchibred - Functions using the invariance modifiers could still lead to DOS

[sherlock-admin4]

Bauchibred

high

Functions using the invariance modifiers could still lead to DOS

Summary

There is an edge case where the stable collateral total is not adjusted to it's real values to avoid a negative value. This adjustments would easily cause an imbalance in the collateral net balance that will revert the transaction when any function called uses say the orderInvariantChecks() or liquidationInvariantChecks() modifiers.

Vulnerability Detail

First, from this section of the readMe we can see that protocol has clearly requested we submit bug ideas that break the invariant checks, to quote them:

• The protocol has hardcoded invariant checks in InvariantChecks.sol. If these can be made to revert, then we should know about it.

Now, take a look at https://github.com/sherlock-audit/2024-03-flat-money-fix-review-contest/blob/539341fdc92090c48792c454e35e5d739ee62820/flatcoin-v1/src/FlatcoinVault.sol#L442-L449

    function _updateStableCollateralTotal(int256 _stableCollateralAdjustment) private {
        int256 newStableCollateralTotal = int256(stableCollateralTotal) + _stableCollateralAdjustment;

        // The stable collateral shouldn't be negative as the other calculations which depend on this
        // @audit
        // will behave in unexpected manners.
        stableCollateralTotal = (newStableCollateralTotal > 0) ? uint256(newStableCollateralTotal) : 0;
    }

We can see that this function adjusts the stable collateral total by adding/subtracting to it _stableCollateralAdjustment, now when this value is negative and greater than the stable collateral total in absolute value, stableCollateralTotal is set to 0.

Since this edge case does not adjust the stable collateral total to its real value, this leads to an imbalance in the accounting of the calculation of the collateral net balance seen here https://github.com/sherlock-audit/2024-03-flat-money-fix-review-contest/blob/539341fdc92090c48792c454e35e5d739ee62820/flatcoin-v1/src/misc/InvariantChecks.sol#L94-L103

    function _getCollateralNet(IFlatcoinVault vault) private view returns (int256 netCollateral) {
        int256 collateralBalance = int256(vault.collateral().balanceOf(address(vault)));
        int256 trackedCollateral = int256(vault.stableCollateralTotal()) +
            vault.getGlobalPositions().marginDepositedTotal;

        if (collateralBalance < trackedCollateral) revert FlatcoinErrors.InvariantViolation("collateralNet1");

        return collateralBalance - trackedCollateral;
    }

Keep in mind that the _getCollateralNet() is always called in the invariant checks modifiers, i.e the orderInvariantChecks & liquidationInvariantChecks modifiers as can be seen here and here, so having the implementation of _getCollateralNet() not using the imbalanced value for the stable collateral, this leads to this check to revert and essentially a reversion to all functions that integrate with these modifiers.

Keep in mind that from this will fix tagged issue: here and it's duplicates, namely: 1 we can see that protocol intended to fix this and infact applied a fix, i.e to the settleFundingFees() instance where it no longer sets the margin deposit total value to 0 compared to the previous codebase, where the margin deposit total value is set to 0 when the funding fees are greater than the margin deposited total, however a similar fix is missing in the _updateStableCollateralTotal() execution which is what this report is about.

Impact

Break in protocol's core functionality cause now functions LiquidationModule.liquidate(), LimitOrder.executeLimitOrder() & DelayedOrder.executeOrder() will not be executable when the stable collateral total is not adjusted to it's real value, due to the orderInvariantChecks and liquidationInvariantChecks modifiers reverting the transactions.

Putting the unavailability of LimitOrder.executeLimitOrder() & DelayedOrder.executeOrder() aside, keep in mind that the unavailability to LiquidationModule.liquidate() alone means protocol would now be engaging with bad debt essentially loss of funds, since liquidations can't go through, which makes the severity for this report High.

Code Snippet

https://github.com/sherlock-audit/2024-03-flat-money-fix-review-contest/blob/539341fdc92090c48792c454e35e5d739ee62820/flatcoin-v1/src/misc/InvariantChecks.sol#L94-L103

https://github.com/sherlock-audit/2024-03-flat-money-fix-review-contest/blob/539341fdc92090c48792c454e35e5d739ee62820/flatcoin-v1/src/misc/InvariantChecks.sol#L33-L45

https://github.com/sherlock-audit/2024-03-flat-money-fix-review-contest/blob/539341fdc92090c48792c454e35e5d739ee62820/flatcoin-v1/src/misc/InvariantChecks.sol#L60-L74

Tool used

• Manual Review
• Will fix tagged issues from previous contest, 1, 2 & 3.

Recommendation

Consider reimplementing the way these modifiers are used in very trivial functions that must be executed like liquidate() and the rest or adapting to account for this edge case.

[sherlock-admin4]

1 comment(s) were left on this issue during the judging contest.

santipu_ commented:

High

[rashtrakoff]

Thanks for this report. We were aware of this edge case (that is when stable collateral total is depleted then this issue will arise). Unfortunately, there is no easy fix for this. We will check whether letting it go to -ve will solve anything but I am not sure it does. When this invariant is triggered then the protocol needs to be paused and the remaining margin re-distributed pro-rata to the leverage traders.

[itsermin]

stableCollateralTotal going to 0 is an edge case scenario that was explained in the readme for this contest and the previous contest as a finding that does not result in a valid finding. It basically means that the UNIT flatcoin goes to 0.

[sherlock-admin2]

The protocol team fixed this issue in the following PRs/commits: https://github.com/dhedge/flatcoin-v1/pull/348

[sherlock-admin2]

The Lead Senior Watson signed off on the fix.