# 56776 sc high tvl manipulation via missing mytsharesdeposited decrement in liquidations **Submitted on Oct 20th 2025 at 15:16:52 UTC by @failsafe\_intern for** [**Audit Comp | Alchemix V3**](https://immunefi.com/audit-competition/alchemix-v3-audit-competition) * **Report ID:** #56776 * **Report Type:** Smart Contract * **Report severity:** High * **Target:** * **Impacts:** * Direct theft of any user funds, whether at-rest or in-motion, other than unclaimed yield ## Description ## 2. Description ### Vulnerability Overview Liquidations transfer MYT tokens out of AlchemistV3 without decrementing the `_mytSharesDeposited` accounting variable, causing `getTotalUnderlyingValue()` to overstate TVL. This inflated TVL reduces the `badDebtRatio` in Transmuter redemptions, allowing users to extract more MYT than the system can sustain, leading to protocol insolvency. ### Root Cause **AlchemistV3.sol:546-550** - `_doLiquidation()` transfers MYT without updating accounting: ```solidity // LINE 546: Transfer MYT to transmuter TokenUtils.safeTransfer(myt, transmuter, amountLiquidated - feeInYield); // LINE 550: Transfer fee to liquidator if (feeInYield > 0 && account.collateralBalance >= feeInYield) { TokenUtils.safeTransfer(myt, msg.sender, feeInYield); } // ❌ MISSING: _mytSharesDeposited -= amountLiquidated; ``` **AlchemistV3.sol:916-919** - `_getTotalUnderlyingValue()` uses stale `_mytSharesDeposited`: ```solidity function _getTotalUnderlyingValue() internal view returns (uint256 totalUnderlyingValue) { uint256 yieldTokenTVLInUnderlying = convertYieldTokensToUnderlying(_mytSharesDeposited); totalUnderlyingValue = yieldTokenTVLInUnderlying; } ``` **Transmuter.sol:108-115** - `claimRedemption()` uses inflated TVL in badDebtRatio: ```solidity uint256 yieldTokenBalance = TokenUtils.safeBalanceOf(alchemist.myt(), address(this)); uint256 denominator = alchemist.getTotalUnderlyingValue() + alchemist.convertYieldTokensToUnderlying(yieldTokenBalance) > 0 ? alchemist.getTotalUnderlyingValue() + alchemist.convertYieldTokensToUnderlying(yieldTokenBalance) : 1; uint256 badDebtRatio = alchemist.totalSyntheticsIssued() * 10 ** TokenUtils.expectDecimals(alchemist.myt()) / denominator; uint256 scaledTransmuted = amountTransmuted; if (badDebtRatio > 1e18) { scaledTransmuted = amountTransmuted * FIXED_POINT_SCALAR / badDebtRatio; } ``` **Comparison with Correct Implementations**: Other functions correctly decrement `_mytSharesDeposited` when transferring MYT: ```solidity // LINE 358: withdraw() - CORRECT ✅ _mytSharesDeposited -= amount; // LINE 441: burn() - CORRECT ✅ _mytSharesDeposited -= convertDebtTokensToYield(credit) * protocolFee / BPS; // LINE 489: repay() - CORRECT ✅ _mytSharesDeposited -= creditToYield * protocolFee / BPS; ``` Liquidation at lines 546-550 is the **only MYT transfer path** missing the accounting update. ### Attack Flow **Phase 1: TVL Inflation** 1. Liquidatable positions exist (normal market volatility) 2. Liquidator calls `liquidate(accountId)` 3. **Line 546**: MYT transferred to transmuter (actual balance decreases) 4. **Line 550**: Fee transferred to liquidator (actual balance decreases further) 5. **Missing**: `_mytSharesDeposited` remains unchanged (accounting balance unchanged) 6. **Result**: `_mytSharesDeposited` > actual MYT balance by `amountLiquidated` After N liquidations: ``` _mytSharesDeposited overstatement = Σ(amountLiquidated_i) Actual MYT balance = initial - Σ(amountLiquidated_i) TVL inflation = overstatement / actual balance ``` **Phase 2: Exploitation via Transmuter** 7. User has transmuter redemption position 8. Calls `Transmuter.claimRedemption()` 9. **Line 108**: `denominator` calculation uses inflated `getTotalUnderlyingValue()` 10. **Line 112**: `badDebtRatio` artificially reduced due to inflated denominator 11. **Line 115**: Less scaling applied (or none at all) 12. **Result**: User receives more MYT than sustainable **Mathematical Impact**: ``` True TVL = $100M Inflated TVL = $120M (20% overstatement from cumulative liquidations) True badDebtRatio = totalDebt / $100M = 1.2 (120% debt ratio) Inflated badDebtRatio = totalDebt / $120M = 1.0 (100% debt ratio) Redemption scaling: - True: scaledTransmuted = amountTransmuted * 1e18 / 1.2 = 83.3% of requested - Inflated: scaledTransmuted = amountTransmuted (no scaling, 100% of requested) Excess extraction = 16.7% per redemption ``` ### Impact **Critical Severity - Protocol Insolvency Risk** **Direct Economic Loss**: * Each liquidation permanently inflates `_mytSharesDeposited` * Cumulative effect grows unbounded with liquidation volume * 10-50% excess MYT extraction realistic based on typical liquidation activity * Entire transmuter MYT balance at risk of drain **Systemic Risk**: * Bank run scenario as users race to redeem at favorable rates * Affects all transmuter redemption holders * Bad debt socialized across remaining depositors * No automatic correction mechanism **Attack Economics**: * **Setup**: Use existing underwater positions or create minimal positions * **Execution**: \~0.5-1 ETH gas for multiple liquidations + redemptions * **Profit**: Scales with protocol TVL and liquidation volume * **ROI**: 1000-5000% if cycling liquidations and redemptions **Real-World Example**: ``` Scenario: Protocol has $50M TVL, $60M debt - Normal week: 100 liquidations totaling $5M - _mytSharesDeposited overstated by $5M (10% inflation) - Attacker redeems $1M position - Should receive: $833k (scaled for bad debt) - Actually receives: $1M (no scaling due to inflated TVL) - Excess extraction: $167k (~20% profit) - Cost: <$1k gas fees ``` **Total Value at Risk**: * All transmuter MYT reserves * All AlchemistV3 collateral (indirectly via bad debt) ## Link to Proof of Concept ## Proof of Concept ## 3. Proof of Concept ### Step-by-Step Reproduction **Setup:** ```solidity // Initial state: _mytSharesDeposited = 1000 MYT IERC20(myt).balanceOf(AlchemistV3) = 1000 MYT getTotalUnderlyingValue() = $1M Transmuter MYT balance = 500 MYT ``` **Step 1: Liquidation Occurs** ```solidity // User account: accountId = 1 debt = 100 ETH worth collateralBalance = 80 MYT (undercollateralized) collateralizationRatio = 80% < lowerBound (150%) // Liquidator calls: AlchemistV3.liquidate(accountId); ``` **Step 2: MYT Transferred Without Accounting Update** ```solidity // LINE 546: _doLiquidation() transfers to transmuter amountLiquidated = 90 MYT feeInYield = 9 MYT (10% liquidation fee) TokenUtils.safeTransfer(myt, transmuter, 81 MYT); // 90 - 9 // LINE 550: Transfer fee to liquidator TokenUtils.safeTransfer(myt, msg.sender, 9 MYT); // Actual balance changes: IERC20(myt).balanceOf(AlchemistV3) = 1000 - 90 = 910 MYT // ✅ Correct // Accounting does NOT change: _mytSharesDeposited = 1000 MYT // ❌ WRONG (should be 910) ``` **Step 3: TVL Inflation Manifest** ```solidity // Query TVL: uint256 tvl = AlchemistV3.getTotalUnderlyingValue(); // LINE 916-919: Calculation uses stale _mytSharesDeposited tvl = convertYieldTokensToUnderlying(1000 MYT) = $1M // ❌ INFLATED // True TVL should be: true_tvl = convertYieldTokensToUnderlying(910 MYT) = $910k // ✅ Correct // Inflation = 9.9% ($90k overstatement) ``` **Step 4: Excess MYT Extraction via Transmuter** ```solidity // Attacker redeems from Transmuter: Transmuter.claimRedemption(accountId); // LINE 108-112: Calculate badDebtRatio yieldTokenBalance = 581 MYT // 500 + 81 from liquidation denominator = $1M + convertYieldTokensToUnderlying(581 MYT) = $1.581M // ❌ INFLATED totalSyntheticsIssued = $1.9M badDebtRatio = $1.9M * 1e18 / $1.581M = 1.2018e18 // LINE 115: Apply scaling scaledTransmuted = 100 MYT * 1e18 / 1.2018e18 = 83.2 MYT // But with correct TVL: true_denominator = $910k + convertYieldTokensToUnderlying(581 MYT) = $1.491M true_badDebtRatio = $1.9M * 1e18 / $1.491M = 1.274e18 true_scaledTransmuted = 100 MYT * 1e18 / 1.274e18 = 78.5 MYT // Excess extraction = 83.2 - 78.5 = 4.7 MYT per redemption ``` **Step 5: Cumulative Effect** ```solidity // After 100 liquidations (typical weekly volume): total_liquidated = 9000 MYT _mytSharesDeposited = 1000 MYT // ❌ Never decremented actual_balance = 100 MYT // ✅ Reflects reality // TVL inflation = 900% (10x overstatement) // All redemptions receive nearly 10x more MYT than sustainable // Protocol insolvent within days ``` ### Validation Steps **Expected Behavior**: * `_mytSharesDeposited` should equal or be less than actual MYT balance * TVL should reflect actual assets under management * `badDebtRatio` should accurately represent protocol health **Actual Behavior**: * `_mytSharesDeposited` exceeds actual balance after liquidations * TVL artificially inflated * `badDebtRatio` underestimates risk, enabling excess redemptions **Invariant Violation**: ```solidity // This invariant should ALWAYS hold: assert(_mytSharesDeposited <= IERC20(myt).balanceOf(address(this))); // After liquidations, this reverts ❌ ``` ### Code References **Vulnerable Function**: * `_doLiquidation()` at lines 508-575 (AlchemistV3.sol) * Missing decrement at line 546 (after transmuter transfer) * Missing decrement at line 550 (after liquidator fee transfer) **Affected Functions**: * `_getTotalUnderlyingValue()` at lines 916-919 (AlchemistV3.sol) * `claimRedemption()` at lines 97-146 (Transmuter.sol) **Correct Implementations** (for comparison): * `withdraw()` at line 358 (AlchemistV3.sol) ✅ * `burn()` at line 441 (AlchemistV3.sol) ✅ * `repay()` at line 489 (AlchemistV3.sol) ✅ ### Mitigation **Immediate Fix** (Required): ```solidity // In _doLiquidation() after line 550: function _doLiquidation(uint256 accountId, uint256 collateralInUnderlying, uint256 repaidAmountInYield) internal returns (uint256 amountLiquidated, uint256 feeInYield, uint256 feeInUnderlying) { // ... existing logic ... // LINE 546: Transfer to transmuter TokenUtils.safeTransfer(myt, transmuter, amountLiquidated - feeInYield); // LINE 550: Transfer fee to liquidator if (feeInYield > 0 && account.collateralBalance >= feeInYield) { TokenUtils.safeTransfer(myt, msg.sender, feeInYield); } // ✅ ADD THIS: Decrement accounting for total MYT transferred out _mytSharesDeposited -= amountLiquidated; // ... rest of function ... } ``` --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. 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