Immunefi Audit Competitions
Alchemix V3

58116 sc high tvl accounting mismatch leading to protocol insolvency

Submitted on Oct 30th 2025 at 18:37:22 UTC by @vah_13 for Audit Comp | Alchemix V3

Description

Brief/Intro

AlchemistV3 fails to decrement the internal _mytSharesDeposited accounting variable when transferring MYT tokens out during forced repayments (_forceRepay) and liquidations (_doLiquidation). This causes getTotalUnderlyingValue() to return overstated TVL values, leading to incorrect collateralization calculations, under-liquidations, bad debt accumulation, and potential protocol insolvency.

Vulnerability Details

Root Cause

The contract maintains an internal accounting variable _mytSharesDeposited to track total MYT shares deposited:

// AlchemistV3.sol
uint256 private _mytSharesDeposited;

function _getTotalUnderlyingValue() internal view returns (uint256) {
    return IVaultV2(myt).convertToAssets(_mytSharesDeposited);
}

This variable is correctly incremented in deposit() (line 368) and decremented in withdraw() (line 403). However, when MYT tokens are forcibly transferred out in two critical paths, the accounting is not updated:

Location 1: _forceRepay() at line 779

function _forceRepay(uint256 accountId, uint256 amount) internal returns (uint256 repaidInYield) {
    // ... calculations ...
    TokenUtils.safeTransfer(myt, transmuter, amount);  // ❌ Transfers MYT out
    // Missing: _mytSharesDeposited -= amount;
    _subDebt(accountId, debtToRepay);
    account.earmarked = account.earmarked > amount ? account.earmarked - amount : 0;
    return amount;
}

Location 2: _doLiquidation() at lines 875, 879

function _doLiquidation(...) internal returns (...) {
    // ... calculations ...
    TokenUtils.safeTransfer(myt, transmuter, amountLiquidated - feeInYield);  // ❌ Line 875

    if (feeInYield > 0 && account.collateralBalance >= feeInYield) {
        TokenUtils.safeTransfer(myt, msg.sender, feeInYield);  // ❌ Line 879
    }
    // Missing: _mytSharesDeposited -= (amountLiquidated);
}

Proof of Concept

Proof of Concept

// SPDX-License-Identifier: UNLICENSED
pragma solidity 0.8.28;

import "forge-std/Script.sol";
import "forge-std/console.sol";

import {AlchemistV3} from "../src/AlchemistV3.sol";
import {IAlchemistV3, AlchemistInitializationParams} from "../src/interfaces/IAlchemistV3.sol";
import {AlchemistV3Position} from "../src/AlchemistV3Position.sol";
import {Transmuter} from "../src/Transmuter.sol";
import {ITransmuter} from "../src/interfaces/ITransmuter.sol";
import {VaultV2} from "vault-v2/VaultV2.sol";
import {IVaultV2} from "vault-v2/interfaces/IVaultV2.sol";
import {AlchemicTokenV3} from "../src/test/mocks/AlchemicTokenV3.sol";
import {TestERC20} from "../src/test/mocks/TestERC20.sol";
import {IERC20} from "@openzeppelin/contracts/token/ERC20/IERC20.sol";
import {TransparentUpgradeableProxy} from "@openzeppelin/contracts/proxy/transparent/TransparentUpgradeableProxy.sol";

/// @notice Foundry Script PoC: Demonstrates TVL/oracle mismatch after forceRepay/liquidation
/// @dev Bug #006: AlchemistV3 does not decrement `_mytSharesDeposited` when transferring MYT out
///      in `_forceRepay` and `_doLiquidation`, causing TVL to be overstated.
contract PoC_Bug006_TVL_Mismatch is Script {
    AlchemistV3 alchemist;
    AlchemistV3Position positionNFT;
    Transmuter transmuter;
    AlchemicTokenV3 debtToken;
    VaultV2 myt;
    TestERC20 underlying;

    address protocolFeeReceiver = address(0x10);
    address proxyOwner = address(0x99);
    address deployer;

    function run() external {
        console.log("========================================");
        console.log("PoC: Critical TVL Mismatch Bug #006");
        console.log("========================================\n");

        vm.startBroadcast();

        deployer = msg.sender;

        // 1) Deploy underlying and MYT vault
        console.log("Step 1: Deploying underlying token and MYT vault...");
        underlying = new TestERC20(1_000_000e18, 18);
        myt = new VaultV2(deployer, address(underlying));
        myt.setName("MYT");
        myt.setSymbol("MYT");
        IERC20(address(underlying)).approve(address(myt), type(uint256).max);
        uint256 assets = 100_000e18;
        uint256 mintedShares = myt.deposit(assets, deployer);
        console.log("  Vault shares minted:", mintedShares);

        // 2) Deploy debtToken and Transmuter
        console.log("\nStep 2: Deploying debt token and Transmuter...");
        debtToken = new AlchemicTokenV3("alUSD", "alUSD", 0);
        ITransmuter.TransmuterInitializationParams memory tparams = ITransmuter.TransmuterInitializationParams({
            syntheticToken: address(debtToken),
            feeReceiver: protocolFeeReceiver,
            timeToTransmute: 100,
            transmutationFee: 0,
            exitFee: 0,
            graphSize: 1000 // Allow deposits
        });
        transmuter = new Transmuter(tparams);

        // 3) Deploy AlchemistV3 with proxy
        console.log("\nStep 3: Deploying AlchemistV3...");
        AlchemistV3 alchemistLogic = new AlchemistV3();
        AlchemistInitializationParams memory params = AlchemistInitializationParams({
            admin: deployer,
            debtToken: address(debtToken),
            underlyingToken: address(underlying),
            depositCap: type(uint256).max,
            minimumCollateralization: 2e18, // 200%
            globalMinimumCollateralization: 2e18,
            collateralizationLowerBound: 2e18,
            transmuter: address(transmuter),
            protocolFee: 0,
            protocolFeeReceiver: protocolFeeReceiver,
            liquidatorFee: 0,
            repaymentFee: 0,
            myt: address(myt)
        });
        bytes memory alchemParams = abi.encodeWithSelector(AlchemistV3.initialize.selector, params);
        TransparentUpgradeableProxy proxyAlchemist = new TransparentUpgradeableProxy(address(alchemistLogic), proxyOwner, alchemParams);
        alchemist = AlchemistV3(address(proxyAlchemist));

        // 4) Setup position NFT
        positionNFT = new AlchemistV3Position(address(alchemist));
        alchemist.setAlchemistPositionNFT(address(positionNFT));

        // 5) Whitelist alchemist
        debtToken.setWhitelist(address(alchemist), true);

        // 6) Create position
        console.log("\nStep 4: Creating position and depositing MYT shares...");
        IERC20(address(myt)).approve(address(alchemist), type(uint256).max);
        uint256 sharesToDeposit = IERC20(address(myt)).balanceOf(deployer) / 2;
        uint256 debtValue = alchemist.deposit(sharesToDeposit, deployer, 0);
        console.log("  Debt value from deposit:", debtValue);

        uint256 tokenId = 1;

        // 7) Mint debt to capacity
        console.log("\nStep 5: Minting debt to maximum capacity...");
        uint256 capacity = alchemist.getMaxBorrowable(tokenId);
        console.log("  Max borrowable (capacity):", capacity);
        alchemist.mint(tokenId, capacity, deployer);

        // 8) Create redemption in transmuter
        console.log("\nStep 6: Creating transmuter redemption to generate earmarks...");
        IERC20(address(debtToken)).approve(address(transmuter), capacity);
        transmuter.setAlchemist(address(alchemist));
        transmuter.setDepositCap(uint256(type(int256).max)); // Max allowed by Transmuter validation
        uint256 redemptionAmount = capacity / 10;
        transmuter.createRedemption(redemptionAmount);
        console.log("  Redemption created:", redemptionAmount);

        // Advance block twice: once to make earmarks available, once more for liquidation timing
        vm.roll(block.number + 2);

        // 9) Measure TVL before liquidation
        console.log("\n========================================");
        console.log("BEFORE LIQUIDATION:");
        console.log("========================================");
        uint256 alchemistSharesBefore = IERC20(address(myt)).balanceOf(address(alchemist));
        uint256 actualUnderlyingBefore = IVaultV2(address(myt)).convertToAssets(alchemistSharesBefore);
        uint256 tvlBefore = alchemist.getTotalUnderlyingValue();
        console.log("  Alchemist MYT shares:", alchemistSharesBefore);
        console.log("  Actual underlying (from vault):", actualUnderlyingBefore);
        console.log("  TVL (from _mytSharesDeposited):", tvlBefore);
        console.log("  Match?", actualUnderlyingBefore == tvlBefore ? "YES" : "NO");

        // 10) Call liquidation
        console.log("\n========================================");
        console.log("TRIGGERING LIQUIDATION...");
        console.log("========================================");
        (uint256 amountLiquidated, uint256 feeInYield, uint256 feeInUnderlying) = alchemist.liquidate(tokenId);
        console.log("  Amount liquidated (yield):", amountLiquidated);
        console.log("  Fee in yield:", feeInYield);
        console.log("  Fee in underlying:", feeInUnderlying);

        // 11) Measure TVL after liquidation
        console.log("\n========================================");
        console.log("AFTER LIQUIDATION:");
        console.log("========================================");
        uint256 alchemistSharesAfter = IERC20(address(myt)).balanceOf(address(alchemist));
        uint256 actualUnderlyingAfter = IVaultV2(address(myt)).convertToAssets(alchemistSharesAfter);
        uint256 tvlAfter = alchemist.getTotalUnderlyingValue();
        console.log("  Alchemist MYT shares:", alchemistSharesAfter);
        console.log("  Actual underlying (from vault):", actualUnderlyingAfter);
        console.log("  TVL (from _mytSharesDeposited):", tvlAfter);
        console.log("  Match?", actualUnderlyingAfter == tvlAfter ? "YES" : "NO");

        // 12) Show the bug
        console.log("\n========================================");
        console.log("BUG DEMONSTRATION:");
        console.log("========================================");
        if (tvlAfter > actualUnderlyingAfter) {
            uint256 discrepancy = tvlAfter - actualUnderlyingAfter;
            console.log("  CRITICAL: TVL is OVERSTATED!");
            console.log("  Discrepancy:", discrepancy);
            console.log("  Percentage overstated (bps):", (discrepancy * 10000) / actualUnderlyingAfter);
            console.log("\n  Root cause: _mytSharesDeposited not decremented");
            console.log("  when MYT transferred out in _forceRepay/_doLiquidation");
        } else {
            console.log("  No discrepancy found");
        }
        console.log("========================================\n");

        vm.stopBroadcast();
    }
}


vah@vah-fuzz:~/Desktop/immunify/AlchemixV3/v3-poc$ forge script script/PoC_Bug006.s.sol --evm-version cancun
Warning: Found unknown `exclude` config for profile `default` defined in foundry.toml.
Warning: Found unknown `exclude` config for profile `lite` defined in foundry.toml.
Warning: Found unknown `fuzz_runs` config for profile `lite` defined in foundry.toml.
Warning: Found unknown `exclude` config for profile `test` defined in foundry.toml.
[⠰] Compiling...
No files changed, compilation skipped
Script ran successfully.
Gas used: 21263564

== Logs ==
  ========================================
  PoC: Critical TVL Mismatch Bug #006
  ========================================

  Step 1: Deploying underlying token and MYT vault...
    Vault shares minted: 100000000000000000000000
  
Step 2: Deploying debt token and Transmuter...
  
Step 3: Deploying AlchemistV3...
  
Step 4: Creating position and depositing MYT shares...
    Debt value from deposit: 50000000000000000000000
  
Step 5: Minting debt to maximum capacity...
    Max borrowable (capacity): 25000000000000000000000
  
Step 6: Creating transmuter redemption to generate earmarks...
    Redemption created: 2500000000000000000000
  
========================================
  BEFORE LIQUIDATION:
  ========================================
    Alchemist MYT shares: 50000000000000000000000
    Actual underlying (from vault): 50000000000000000000000
    TVL (from _mytSharesDeposited): 50000000000000000000000
    Match? YES
  
========================================
  TRIGGERING LIQUIDATION...
  ========================================
    Amount liquidated (yield): 50000000000000000000
    Fee in yield: 0
    Fee in underlying: 0
  
========================================
  AFTER LIQUIDATION:
  ========================================
    Alchemist MYT shares: 49950000000000000000000
    Actual underlying (from vault): 49950000000000000000000
    TVL (from _mytSharesDeposited): 50000000000000000000000
    Match? NO
  
========================================
  BUG DEMONSTRATION:
  ========================================
    CRITICAL: TVL is OVERSTATED!
    Discrepancy: 50000000000000000000
    Percentage overstated (bps): 10
  
  Root cause: _mytSharesDeposited not decremented
    when MYT transferred out in _forceRepay/_doLiquidation
  ========================================