58383 sc high due to cumulativeearmarked not being updated in alchemix forcerepay user funds are locked longer due to slower debt decay and calculation of system collaterization rate is inc

Submitted on Nov 1st 2025 at 20:13:46 UTC by @DeoGratias for Audit Comp | Alchemix V3

• Report ID: #58383

• Report Type: Smart Contract

• Report severity: High

• Target: https://github.com/alchemix-finance/v3-poc/blob/immunefi_audit/src/AlchemistV3.sol

• Impacts:

  • Protocol insolvency

  • Temporary freezing of funds for at least 24 hour

Description

Due to cumulativeEarmarked not being updated in Alchemix::_forceRepay user funds are locked longer due to slower debt decay and calculation of system collaterization rate is Incorrect

Description: When a position is liquidated, AlchemistV3::_liquidate() first calls AlchemistV3::_forceRepay(accountId, account.earmarked) to clear the position’s earmarked debt using its collateral. Inside _forceRepay, the account’s local earmarked is reduced, but the global cumulativeEarmarked is not decremented to reflect that removal.

Because redeem() uses cumulativeEarmarked as the live denominator for decay/weight math, an inflated cumulativeEarmarked causes subsequent redemptions to be allocated over a larger-than-real bucket. Remaining users’ earmarks decay too slowly, delaying their debt reduction and effectively keeping their funds locked longer than intended.

 if (liveEarmarked != 0 && redeemedDebtTotal != 0) {
            uint256 survival = ((liveEarmarked - redeemedDebtTotal) << 128) / liveEarmarked;
            _survivalAccumulator = _mulQ128(_survivalAccumulator, survival);
            _redemptionWeight += PositionDecay.WeightIncrement(redeemedDebtTotal, cumulativeEarmarked); //<-----
        }

As well because AlchemistV3::_forceRepay(accountId, account.earmarked) decrements totalDebt through AlchemistV3::subDebt without updating cumulativeEarmarked, AlchemistV3::redeem subtracts that phantom portion from totalDebt a second time (totalDebt -= redeemedDebtTotal, redeemedDebtTotal is inflated because cumulativeEarmark is inflated). This results in a defalted totalDebt which subsequently affects liquidations because it affects calculation of system collaterization (alchemistCurrentCollateralization uses totalDebt in the denominator). This makes liquidations less likely when they should happen.

(uint256 liquidationAmount, uint256 debtToBurn, uint256 baseFee, uint256 outsourcedFee) = calculateLiquidation(
            collateralInUnderlying,
            account.debt,
            minimumCollateralization,
            normalizeUnderlyingTokensToDebt(_getTotalUnderlyingValue()) * FIXED_POINT_SCALAR / totalDebt, //<-------
            globalMinimumCollateralization,
            liquidatorFee
        );

By contrast, repay() correctly decrements both the account’s earmarked and the global cumulativeEarmarked.

Impact:

Users debt experience slower-than-correct earmark decay compared to the amount of collateral they lose after any _forceRepay event. This delays their redemptions and extending time-to-unlock.

Deflated Total Debt -> Inflated System collaterization -> Affects liqudations -> Affects Protocol Solvency.

Proof of Concept

Proof of Concept:

The provided test testPOC_ForceRepay_SlowsDecay_WithBurn() demonstrates:

1. Two users A & B mint near the minimum collateralization and build earmarks.

2. A triggers liquidation. _forceRepay() zeros A’s local earmarked but does not reduce cumulativeEarmarked. The test asserts:

   • alchemist.cumulativeEarmarked() > (A.earmarked + B.earmarked) (A’s removed earmark still counted globally).

3. A small redeem() is executed. Because redeem() uses the inflated cumulativeEarmarked as denominator, B’s observed earmark drop is less than the ideal drop computed using the true live sum of earmarks. The test verifies:

   • The total debt reduction matches the inflated-denominator cap.

   • B_ChangeInEarMark * liveEarmarkSum < B_EarmarkBeforeRedeem * ObservedTotalDebtReduction (i.e., B’s earmark decays too slowly, and is not proportional to the amount of debt reduced in the system).

   • As well we assert totalDebt < Sum(A.debt + b.debt) even after they have been synced.

To run the POC paste the below code in AlchemistV3.t.sol and run the test using the command forge test --mt testPOC_ForceRepay_SlowsDown_DebtDecay

function testPOC_ForceRepay_SlowsDown_DebtDecay() external {
    // ─────────────────────────────────────────────────────────────────────────────
    // 0) Disable fees so only earmark/weight math matters
    // ─────────────────────────────────────────────────────────────────────────────
    vm.startPrank(alOwner);
    alchemist.setProtocolFee(0);
    alchemist.setRepaymentFee(0);
    vm.stopPrank();
    console.log("\n[0] Fees disabled: protocolFee=%e, repaymentFee=%e",
        alchemist.protocolFee(), alchemist.repaymentFee());

    // ─────────────────────────────────────────────────────────────────────────────
    // 1) Two borrowers (A & B) mint MAX at (near) minimum collateralization
    // ─────────────────────────────────────────────────────────────────────────────
    uint256 collateralDeposit = 100e18;

    // A mints
    vm.startPrank(address(0xBEEF));
    SafeERC20.safeApprove(address(vault), address(alchemist), collateralDeposit);
    alchemist.deposit(collateralDeposit, address(0xBEEF), 0);
    uint256 cdpIdA = AlchemistNFTHelper.getFirstTokenId(address(0xBEEF), address(alchemistNFT));
    uint256 maxMintA = (alchemist.totalValue(cdpIdA) * FIXED_POINT_SCALAR) / alchemist.minimumCollateralization();
    alchemist.mint(cdpIdA, maxMintA, address(0xBEEF));
    vm.stopPrank();
    console.log("\n[1] A minted:");
    console.log("  cdpIdA               : %e", cdpIdA);
    console.log("  deposit (MYT shares) : %e", collateralDeposit);
    console.log("  maxMintA (alDebt)    : %e", maxMintA);

    // B mints
    vm.startPrank(externalUser);
    SafeERC20.safeApprove(address(vault), address(alchemist), collateralDeposit);
    alchemist.deposit(collateralDeposit, externalUser, 0);
    uint256 cdpIdB = AlchemistNFTHelper.getFirstTokenId(externalUser, address(alchemistNFT));
    uint256 maxMintB = (alchemist.totalValue(cdpIdB) * FIXED_POINT_SCALAR) / alchemist.minimumCollateralization();
    alchemist.mint(cdpIdB, maxMintB, externalUser);
    vm.stopPrank();
    console.log("\n[1] B minted:");
    console.log("  cdpIdB               : %e", cdpIdB);
    console.log("  deposit (MYT shares) : %e", collateralDeposit);
    console.log("  maxMintB (alDebt)    : %e", maxMintB);

    console.log("\n[1] Totals after mint:");
    console.log("  totalDebt            : %e", alchemist.totalDebt());
    console.log("  totalSyntheticsIssued: %e", alchemist.totalSyntheticsIssued());
    console.log("  cumulativeEarmarked  : %e", alchemist.cumulativeEarmarked());

    // ─────────────────────────────────────────────────────────────────────────────
    // 2) Stake 50% of total debt into the Transmuter → earmarks will start accruing
    //    Capture the redemption position ID and advance to (just past) full maturity
    // ─────────────────────────────────────────────────────────────────────────────
    uint256 totalDebtBefore = alchemist.totalDebt(); // == totalSyntheticsIssued
    uint256 stake1 = totalDebtBefore / 5; // 20%
    uint256 stake2 = totalDebtBefore / 5; // another 20% (total 40%)

    vm.startPrank(address(0xDAD));
    IERC20(address(alToken)).approve(address(transmuterLogic), stake1);
    transmuterLogic.createRedemption(stake1);
    vm.stopPrank();

    vm.startPrank(address(0xBEEF));
    IERC20(address(alToken)).approve(address(transmuterLogic), stake2);
    transmuterLogic.createRedemption(stake2);
    vm.stopPrank();

    console.log("\n[2] Redemption created by 0xDAD:");
    console.log("  stake (alDebt)       : %e", stake1);
    console.log("  transmuter.totalLocked: %e", ITransmuter(transmuterLogic).totalLocked());

    console.log("\n[2] Redemption created by 0xBEEF:");
    console.log("  stake (alDebt)       : %e", stake2);
    console.log("  transmuter.totalLocked: %e", ITransmuter(transmuterLogic).totalLocked());

    // Roll to full maturity so the position has fully transmuted (maximizes redeem effect)
    ITransmuter.StakingPosition memory pos = transmuterLogic.getPosition(1);
    console.log("  position[1]: start=%e, mature=%e, amount=%e", pos.startBlock, pos.maturationBlock, pos.amount);
    vm.roll(pos.maturationBlock + 1);
    console.log("  rolled to block      : %e", block.number);

    // sync local earmarks for A & B to reflect accrual up to now
    alchemist.poke(cdpIdA);
    alchemist.poke(cdpIdB);
    {
        (uint256 cA, uint256 dA, uint256 eA) = alchemist.getCDP(cdpIdA);
        (uint256 cB, uint256 dB, uint256 eB) = alchemist.getCDP(cdpIdB);
        console.log("\n[2] After maturity & poke:");
        console.log("  A: coll=%e, debt=%e, earmark=%e", cA, dA, eA);
        console.log("  B: coll=%e, debt=%e, earmark=%e", cB, dB, eB);
        console.log("  cumulativeEarmarked  : %e", alchemist.cumulativeEarmarked());
    }

    // ─────────────────────────────────────────────────────────────────────────────
    // 3) A does a SMALL (partial) burn of *unearmarked* debt to hover near threshold
    // ─────────────────────────────────────────────────────────────────────────────
    (, uint256 debtA_beforeBurn, uint256 earmarkA_beforeBurn) = alchemist.getCDP(cdpIdA);
    uint256 unearmarkedDebtA = debtA_beforeBurn > earmarkA_beforeBurn ? debtA_beforeBurn - earmarkA_beforeBurn : 0;
    console.log("\n[3] A pre-burn:");
    console.log("  debtA_beforeBurn     : %e", debtA_beforeBurn);
    console.log("  earmarkA_beforeBurn  : %e", earmarkA_beforeBurn);
    console.log("  unearmarkedDebtA     : %e", unearmarkedDebtA);

    // Burn amount = 10% of unearmarked portion, but never exceeding burn capacity
    uint256 remainingBurnCapacity = alchemist.totalSyntheticsIssued() - ITransmuter(transmuterLogic).totalLocked();
    uint256 burnAmountA = unearmarkedDebtA / 10;
    if (burnAmountA > remainingBurnCapacity) burnAmountA = remainingBurnCapacity;

    console.log("  remainingBurnCapacity: %e", remainingBurnCapacity);
    console.log("  burnAmountA          : %e", burnAmountA);

    if (burnAmountA > 0) {
        vm.roll(block.number + 1); // avoid CannotRepayOnMintBlock
        vm.startPrank(address(0xBEEF));
        IERC20(address(alToken)).approve(address(alchemist), 0);
        IERC20(address(alToken)).approve(address(alchemist), burnAmountA);
        alchemist.burn(burnAmountA, cdpIdA);
        vm.stopPrank();
    }

    // State after partial burn
    (uint256 collateralA_preDrop, uint256 debtA_afterBurn,) = alchemist.getCDP(cdpIdA);
    console.log("\n[3] A after burn:");
    console.log("  collateralA_preDrop  : %e", collateralA_preDrop);
    console.log("  debtA_afterBurn      : %e", debtA_afterBurn);

    // ─────────────────────────────────────────────────────────────────────────────
    // 4) Precise price drop: make A just *under* the lower bound to ensure liquidation
    // ─────────────────────────────────────────────────────────────────────────────
    uint256 collatLowerBound = alchemist.collateralizationLowerBound(); // 1e18
    require(debtA_afterBurn > 0 && collateralA_preDrop > 0, "bad inputs");

    // pfBoundary = (lowerBound * debt) / collateral
    uint256 priceFactorAtBoundary = (collatLowerBound * debtA_afterBurn) / collateralA_preDrop;
    // Nudge 0.1% lower
    uint256 priceFactorTarget = (priceFactorAtBoundary * 999) / 1000; // 0.999 * boundary

    // Supply scales inversely with price; to multiply price by pf (<1), multiply supply by 1/pf
    uint256 tokenSupplyBefore = IERC20(address(mockStrategyYieldToken)).totalSupply();
    uint256 tokenSupplyTarget = (tokenSupplyBefore * 1e18 + priceFactorTarget - 1) / priceFactorTarget; // ceil-div
    console.log("\n[4] Price drop tuning:");
    console.log("  collatLowerBound     : %e", collatLowerBound);
    console.log("  priceFactorBoundary  : %e", priceFactorAtBoundary);
    console.log("  priceFactorTarget    : %e", priceFactorTarget);
    console.log("  tokenSupplyBefore    : %e", tokenSupplyBefore);
    console.log("  tokenSupplyTarget    : %e", tokenSupplyTarget);

    IMockYieldToken(mockStrategyYieldToken).updateMockTokenSupply(tokenSupplyTarget);

    // ─────────────────────────────────────────────────────────────────────────────
    // 5) Liquidate A → triggers _forceRepay(A.earmarked). Bug: global cumulativeEarmarked not decremented
    // ─────────────────────────────────────────────────────────────────────────────
    vm.prank(externalUser);
    alchemist.liquidate(cdpIdA);

    (, /*debtA_afterForceRepay*/, uint256 earmarkA_afterForceRepay) = alchemist.getCDP(cdpIdA);
    console.log("\n[5] After liquidation (forceRepay path):");
    console.log("  A.earmark afterForce : %e", earmarkA_afterForceRepay);

    // Compare live locals vs global
    (,, uint256 earmarkB_beforeRedeem) = alchemist.getCDP(cdpIdB);
    uint256 liveEarmarkSum = earmarkA_afterForceRepay + earmarkB_beforeRedeem;

    uint256 cumulativeEarmarkAfterForce = alchemist.cumulativeEarmarked();
    console.log("  B.earmark beforeRedeem: %e", earmarkB_beforeRedeem);
    console.log("  liveEarmarkSum (A+B)  : %e", liveEarmarkSum);
    console.log("  cumulativeEarmarked   : %e", cumulativeEarmarkAfterForce);

    assertEq(earmarkA_afterForceRepay, 0, "A.earmarked not zero after _forceRepay");
    assertGt(
        cumulativeEarmarkAfterForce,
        liveEarmarkSum,
        "global cumulativeEarmarked should still include A's removed earmark (desync/bug)"
    );

    // ─────────────────────────────────────────────────────────────────────────────
    // 6) Claim the Transmuter redemption (user path) → internal alchemist.redeem(...)
    // ─────────────────────────────────────────────────────────────────────────────
    uint256 cumulativeEarmarkBeforeRedeem = alchemist.cumulativeEarmarked();
    console.log("\n[6] Before claim:");
    console.log("  cumulativeEarmarked   : %e", cumulativeEarmarkBeforeRedeem);

    // The redemption position owner claims
    vm.prank(address(0xDAD));
    transmuterLogic.claimRedemption(1);

    uint256 cumulativeEarmarkAfterRedeem  = alchemist.cumulativeEarmarked();
    uint256 observedTotalDebtReduction    = cumulativeEarmarkBeforeRedeem - cumulativeEarmarkAfterRedeem;
    console.log("\n[6] After claim:");
    console.log("  cumulativeEarmarked   : %e", cumulativeEarmarkAfterRedeem);
    console.log("  observedDebtReduction : %e", observedTotalDebtReduction);
    require(observedTotalDebtReduction > 0, "no redemption occurred");

    // B’s actual earmark drop using the (buggy) global denominator
    alchemist.poke(cdpIdB);
    (,, uint256 earmarkB_afterRedeem) = alchemist.getCDP(cdpIdB);
    uint256 B_ChangeInEarMark = earmarkB_beforeRedeem - earmarkB_afterRedeem;
    console.log("  B.earmark afterRedeem : %e", earmarkB_afterRedeem);
    console.log("  B.changeInEarmark     : %e", B_ChangeInEarMark);

    // Ideal vs observed via cross-multiplication
    // ideal share = observedTotalDebtReduction * (earmarkB_beforeRedeem / liveEarmarkSum)
    uint256 lhs_observed = B_ChangeInEarMark * liveEarmarkSum;
    uint256 rhs_ideal    = earmarkB_beforeRedeem * observedTotalDebtReduction;
    console.log("  cross-mult observed   : %e", lhs_observed);
    console.log("  cross-mult ideal      : %e", rhs_ideal);

    assertLt(
        lhs_observed,
        rhs_ideal,
        "B's earmark did not decay slower than ideal - expected slower due to inflated global denominator"
    );

    // Final quick snapshot
    {
        (uint256 cA2, uint256 dA2, uint256 eA2) = alchemist.getCDP(cdpIdA);
        (uint256 cB2, uint256 dB2, uint256 eB2) = alchemist.getCDP(cdpIdB);
        console.log("\n[final] Snapshots:");
        console.log("  A: coll=%e, debt=%e, earmark=%e", cA2, dA2, eA2);
        console.log("  B: coll=%e, debt=%e, earmark=%e", cB2, dB2, eB2);
        console.log("  cumulativeEarmarked   : %e", alchemist.cumulativeEarmarked());
        console.log("  totalDebt             : %e", alchemist.totalDebt());
        console.log("  totalSyntheticsIssued : %e", alchemist.totalSyntheticsIssued());
        assertNotEq(dA2 + dB2, alchemist.totalDebt(), "debt sum mismatch");
    }
}

Output

[PASS] testPOC_ForceRepay_SlowsDown_DebtDecay() (gas: 5967718)
Logs:
  
[0] Fees disabled: protocolFee=0e0, repaymentFee=0e0
  
[1] A minted:
    cdpIdA               : 1e0
    deposit (MYT shares) : 1e20
    maxMintA (alDebt)    : 9.0000000000000000009e19
  
[1] B minted:
    cdpIdB               : 2e0
    deposit (MYT shares) : 1e20
    maxMintB (alDebt)    : 9.0000000000000000009e19
  
[1] Totals after mint:
    totalDebt            : 1.80000000000000000018e20
    totalSyntheticsIssued: 1.80000000000000000018e20
    cumulativeEarmarked  : 0e0
  
[2] Redemption created by 0xDAD:
    stake (alDebt)       : 3.6000000000000000003e19
    transmuter.totalLocked: 7.2000000000000000006e19
  
[2] Redemption created by 0xBEEF:
    stake (alDebt)       : 3.6000000000000000003e19
    transmuter.totalLocked: 7.2000000000000000006e19
    position[1]: start=1e0, mature=5.256001e6, amount=3.6000000000000000003e19
    rolled to block      : 5.256002e6
  
[2] After maturity & poke:
    A: coll=1e20, debt=9.0000000000000000009e19, earmark=3.6000000000000000003e19
    B: coll=1e20, debt=9.0000000000000000009e19, earmark=3.6000000000000000003e19
    cumulativeEarmarked  : 7.2000000000000000006e19
  
[3] A pre-burn:
    debtA_beforeBurn     : 9.0000000000000000009e19
    earmarkA_beforeBurn  : 3.6000000000000000003e19
    unearmarkedDebtA     : 5.4000000000000000006e19
    remainingBurnCapacity: 1.08000000000000000012e20
    burnAmountA          : 5.4e18
  
[3] A after burn:
    collateralA_preDrop  : 1e20
    debtA_afterBurn      : 8.4600000000000000009e19
  
[4] Price drop tuning:
    collatLowerBound     : 1.05263157895e18
    priceFactorBoundary  : 8.905263157917e17
    priceFactorTarget    : 8.896357894759083e17
    tokenSupplyBefore    : 1e24
    tokenSupplyTarget    : 1.124055497575146068053877e24
  
[5] After liquidation (forceRepay path):
    A.earmark afterForce : 0e0
    B.earmark beforeRedeem: 3.6000000000000000003e19
    liveEarmarkSum (A+B)  : 3.6000000000000000003e19
    cumulativeEarmarked   : 7.2000000000000000006e19
  
[6] Before claim:
    cumulativeEarmarked   : 7.2000000000000000006e19
  redeemedDebtTotal: 3.6000000000000000003e19
  
[6] After claim:
    cumulativeEarmarked   : 3.6000000000000000003e19
    observedDebtReduction : 3.6000000000000000003e19
    B.earmark afterRedeem : 1.8000000000000000002e19
    B.changeInEarmark     : 1.8000000000000000001e19
    cross-mult observed   : 6.48000000000000000090000000000000000003e38
    cross-mult ideal      : 1.296000000000000000216000000000000000009e39
  
[final] Snapshots:
    A: coll=5.9534002087294741501e19, debt=4.8600000000000000006e19, earmark=0e0
    B: coll=9.9999999999999999999e19, debt=7.2000000000000000008e19, earmark=1.8000000000000000002e19
    cumulativeEarmarked   : 3.6000000000000000003e19
    totalDebt             : 1.02600000000000000012e20
    totalSyntheticsIssued : 1.38600000000000000015e20

Suite result: ok. 1 passed; 0 failed; 0 skipped; finished in 38.81ms (16.36ms CPU time)