#37889 [SC-High] Underflow in `burn()` function will cause user funds to partially frozen

Submitted on Dec 18th 2024 at 10:46:52 UTC by @ruhum for Audit Comp | Folks: Liquid Staking

• Report ID: #37889

• 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:

  • Permanent freezing of funds

Description

Brief/Intro

In burn(), the contract subtracts the amount of ALGO to send from the total_active_stake_key. The amount of ALGO can be bigger than total_active_stake_key causing an underflow.

Vulnerability Details

In burn() it subtracts the amount of ALGO that's sent to the user from total_active_stake_key:

App.globalPut(total_active_stake_key, App.globalGet(total_active_stake_key) - algo_to_send.load()),

total_active_stake_key is the sum of all the ALGO deposits made by users. When the user redeems their xALGO they get a little more ALGO back than they initially deposited because of the rewards earned by the proposers. That surplus amount of ALGO is not included in total_active_stake_key causing the total xALGO converted to ALGO to be bigger than total_active_stake_key which in turn will cause an underflow in certain situations.

algo_to_send is calculated as:

        algo_to_send.store(
            mul_scale(
                burn_amount,
                algo_balance.load(),
                get_x_algo_circulating_supply() + burn_amount
            )
        ),

Here, algo_balance is the total ALGO balance of the proposers (deposits + rewards).

This only applies to very large depositors or the last users to redeem their xALGO.

Impact Details

A small subset of user funds will be frozen and not recoverable.

References

https://github.com/Folks-Finance/algo-liquid-staking-contracts/blob/8bd890fde7981335e9b042a99db432e327681e1a/contracts/xalgo/consensus_v2.py#L824

Proof of Concept

Proof of Concept

Following test can be copied into xAlgoConsensusV2.test.ts under describe("burn"):

      test("issue", async () => {
        // airdrop rewards
        const additionalRewards = BigInt(10e6);
        await fundAccountWithAlgo(algodClient, proposer1.addr, additionalRewards, await getParams(algodClient));
        const additionalRewardsFee = mulScale(additionalRewards, fee, ONE_4_DP);

        const proposerAddrs = [proposer0.addr, proposer1.addr];

        // we burn all the XAlgo from user1 and user2. That should cause `total_active_stake_key` to underflow.
        const user1XAlgoBalance = await getAssetBalance(algodClient, user1.addr, xAlgoId);
        let txns = prepareBurnFromXAlgoConsensusV2(xAlgoConsensusABI, xAlgoAppId, xAlgoId, user1.addr, user1XAlgoBalance, 0, proposerAddrs, await getParams(algodClient));
        let [, txId] = await submitGroupTransaction(algodClient, txns, txns.map(() => user1.sk));

        const user2XAlgoBalance = await getAssetBalance(algodClient, user2.addr, xAlgoId);
        txns = prepareBurnFromXAlgoConsensusV2(xAlgoConsensusABI, xAlgoAppId, xAlgoId, user2.addr, user2XAlgoBalance, 0, proposerAddrs, await getParams(algodClient));
        [, txId] = await submitGroupTransaction(algodClient, txns, txns.map(() => user2.sk));

        /*
          error:
          URLTokenBaseHTTPError: Network request error. Received status 400 (Bad Request): TransactionPool.Remember: transact
          ion YZRHNW5M2NOI6MNZQX5YKVG7K7OITD73SSK6U5HOG5PX4MVAKADQ: logic eval error: - would result negative. Details: app=1010,
          pc=2969, opcodes=app_global_get; load 42; -
        */
      });