First Depositor Bug

Background: https://akshaysrivastav.hashnode.dev/first-deposit-bug-in-compoundv2-and-its-forks

The First Depositor Attack in Compound / Aave v2 lending protocols:

Key points:

• First depositor supplies a tiny amount (e.g. 1 wei) of assets
• First depositor donates a large amount directly to the lending pool (bypassing supply)
• This artificially inflates the exchange rate between shares and assets
• Next depositor will receive very few shares for their deposit
• If next depositor’s amount is smaller than exchange rate, they will receive 0 shares due to rounding error
• First depositor owns all shares, so they can withdraw all assets

Example:

1. Attacker deposits 1 wei, gets 1 share
2. Attacker donates 1000 tokens directly
3. Exchange rate is now 1000.00..01 tokens : 1 share
4. Victim deposits 100 tokens, gets only ~0.1 shares due to inflated rate -> will be rounded down to 0
5. Attacker withdraws 1 share and gets 1100 tokens, stealing all of victim’s deposit

Traditional prevention :

• Attack only makes sense if attacker owns all shares (or close to it)
  • If he owns all shares, donating tokens to the pool will still be owned by the attacker
• Protocols typically deposit with opening the market atomically
  • This means not all shares are owned by the attacker
  • Adjustments to the protocol could mint tokens to 0x0 upon first mint/deposit
• Many forks fail to combine these actions

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How can assertions help?

• History has shown that an old vulnerability has found its way into many protocols
• Many succesfull attacks leveraged this vulnerability
  • Sonne Finance
  • Radiant Capital
  • Hundred Finance
• Assertions can be used to easily prevent known vulnerabilities in forked protocols
  • Enforce existing workarounds
  • I.e. Sonne Finance planned to execute deploying the market and depositing atomically, however, their governance process let the attacker execute the transactions out of order
• Low entry barrier to enable publicly known assertions for famous protocols to your own fork

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Example: Enforce atomically opening the market and depositing first assets

function assertionHasMinimumSupply() public view {
  Market market = Market(address(0x1234));
  require(market.totalSupply() > MINIMUM_SUPPLY, "Market has no supply");
}

​

Example: Enforce exchange rate < deposit amount

function assertionExchangeRate() public view {
  Market market = Market(address(0x1234));


  PhEvm.CallInputs[] memory inputs = PhEvm.CallInputs(address(cToken),abi.encodeWithSelector(cToken.mint.selector));

  for (uint256 i = 0; i < inputs.length; i++) {
    PhEvm.CallInputs memory input = inputs[i];
    (address target, uint256 amount) = abi.decode(input.data, (address, uint256));
    require(amount / market.exchangeRate() > 0, "Did not receive any shares");
  }
}