#37863 [SC-High] Underflow in burn method prevents all xALGO from being burnt

Submitted on Dec 17th 2024 at 19:47:02 UTC by @uhudo for Audit Comp | Folks: Liquid Staking

• Report ID: #37863

• Report Type: Smart Contract

• Report severity: High

• Target: https://github.com/Folks-Finance/algo-liquid-staking-contracts/blob/8bd890fde7981335e9b042a99db432e327681e1a/contracts/xalgo/consensus_v2.py

• Impacts:

  • Temporary freezing of funds for at least 1 hour

Description

Brief/Intro

A portion of minted xALGO cannot be burned, leading to users losing their funds. Currently, about 111,000 ALGO on Mainnet would not be able to be burnt.

Vulnerability Details

The problem arises in burn method (https://github.com/Folks-Finance/algo-liquid-staking-contracts/blob/8bd890fde7981335e9b042a99db432e327681e1a/contracts/xalgo/consensus_v2.py#L793) due to a possible underflow at L824 (https://github.com/Folks-Finance/algo-liquid-staking-contracts/blob/8bd890fde7981335e9b042a99db432e327681e1a/contracts/xalgo/consensus_v2.py#L824). The underflow happens because the ALGO to be returned during the burn is allocated only from the total_active_stake, while the xALGO in reality represents also the portion of ALGO that have been received by the protocol as part of the staking rewards total_reward. Because the smart contract remains upgradable, a future smart contract upgrade could possibly recover these funds.

Impact Details

The amount of xALGO that cannot be burnt is increasing with the reward that the protocol is getting, i.e. xALGO_{lost} = xALGO_{minted} * (R-U)/(A+R-U), where A is the total_active_stake, R the total_reward, and U the total_unclaimed_fees. Based on the current state of the Algorand Mainnet (application ID: 1134695678 (https://lora.algokit.io/mainnet/application/1134695678)), this would result in about 111,000 ALGO being lost by users that are last to burn their xALGO.

References

This is the high-level security bug found during the Audit Competition. The full report on all bugs and insights found is accessible until 2025/01/16 at https://www.swisstransfer.com/d/4c5dff62-e56b-4c13-bc07-0bbba1e00e84. The download is password-protected. The password is NT4SCGJ7NTJENGSDWKKLZLZ2J (the first 25 letters of authors' Algorand address: NT4SCGJ7NTJENGSDWKKLZLZ2JNXFXM5Y6HLU224TPUJXNA2IU3DBBHDTMQ). The shared folder includes the full report (PDF file) and a .zip of the full test suite project (using AlgoKit), demonstrating all found issues.

Proof of Concept

Proof of Concept

The test demonstrating that not all xALGO can be burned is implemented in burn_test.py, found in https://www.swisstransfer.com/d/4c5dff62-e56b-4c13-bc07-0bbba1e00e84 (password is NT4SCGJ7NTJENGSDWKKLZLZ2J):

import pytest from algokit_utils import ( TransactionParameters, ) from algokit_utils.beta.account_manager import AddressAndSigner from algokit_utils.beta.algorand_client import AlgorandClient from algokit_utils.beta.composer import AssetTransferParams from algosdk.atomic_transaction_composer import ( AtomicTransactionComposer, TransactionWithSigner, ) from algosdk.error import AlgodHTTPError

from tests.consensus.conftest import BOX_PROPOSERS_PREFIX, Setup from tests.utils import ( available_balance, get_sp, )

def test_burn_all_fails( algorand_client: AlgorandClient, dispenser: AddressAndSigner, setup: Setup, ) -> None:

with pytest.raises(AlgodHTTPError) as e:
    # Get all xALGO in circulation
    burn_amt = available_balance(algorand_client, dispenser.address, setup.xalgo)
    atc = AtomicTransactionComposer()
    send_xalgo = TransactionWithSigner(
        algorand_client.transactions.payment(
            AssetTransferParams(
                sender=dispenser.address,
                asset_id=setup.xalgo,
                signer=dispenser.signer,
                receiver=setup.client.app_address,
                amount=burn_amt,
            )
        ),
        signer=dispenser.signer,
    )

    setup.client.compose(atc).burn(
        send_xalgo=send_xalgo,
        min_received=1,
        transaction_parameters=TransactionParameters(
            sender=dispenser.address,
            signer=dispenser.signer,
            suggested_params=get_sp(algorand_client, 3),
            accounts=[setup.proposer.address],
            boxes=[(0, BOX_PROPOSERS_PREFIX)],
            foreign_assets=[setup.xalgo],
        ),
    ).build().execute(setup.client.algod_client, 1)
assert "logic eval error: - would result negative" in str(e.value) and "opcodes=app_global_get; load 42" in str(e.value) # noqa: E501
# Incorrectly fails on L824 of `consensus_v2.py` due to underflow

return