52915 sc low yield are transferred before eligibility check potentially leading to freezing of funds

Submitted on Aug 14th 2025 at 09:13:02 UTC by @spongebob for Attackathon | Plume Network

Report ID: #52915
Report Type: Smart Contract
Report severity: Low
Target: https://github.com/immunefi-team/attackathon-plume-network/blob/main/arc/src/ArcToken.sol
Impacts: Permanent freezing of funds

Description

The distributeYield and distributeYieldWithLimit functions in the ArcToken contract contain a flaw where yield tokens are transferred from the caller to the contract before checking if any token holders are eligible to receive yield.

Reference: https://github.com/immunefi-team/attackathon-plume-network/blob/580cc6d61b08a728bd98f11b9a2140b84f41c802/arc/src/ArcToken.sol#L408

Behavior:

When all token holders are restricted from receiving yield (resulting in effectiveTotalSupply == 0), the functions still execute the safeTransferFrom call but then emit YieldDistributed(0, ...) and return without distributing any tokens.
- Reference: https://github.com/immunefi-team/attackathon-plume-network/blob/580cc6d61b08a728bd98f11b9a2140b84f41c802/arc/src/ArcToken.sol#L425-L428
The transferred yield tokens become permanently trapped in the contract since there are no sweep or recovery functions implemented.

Root cause summary:

safeTransferFrom executes first, pulling tokens from the caller.
effectiveTotalSupply is calculated afterward by checking yield restrictions.
- Reference: https://github.com/immunefi-team/attackathon-plume-network/blob/580cc6d61b08a728bd98f11b9a2140b84f41c802/arc/src/ArcToken.sol#L417-L423
If no holders are eligible (effectiveTotalSupply == 0), the function returns early without distribution.
- Reference: https://github.com/immunefi-team/attackathon-plume-network/blob/580cc6d61b08a728bd98f11b9a2140b84f41c802/arc/src/ArcToken.sol#L417-L423
No recovery mechanism exists to retrieve the trapped tokens.

The same pattern exists in distributeYieldWithLimit where tokens are transferred on the first batch (startIndex == 0) before eligibility checks.

Reference: https://github.com/immunefi-team/attackathon-plume-network/blob/580cc6d61b08a728bd98f11b9a2140b84f41c802/arc/src/ArcToken.sol#L526-L528

Impact

Yield tokens transferred to the contract cannot be recovered through any on-chain mechanism, leading to permanent loss of yield tokens when all token holders become ineligible for yield distribution.

Proof of Concept

Deploy ArcToken with yield restrictions

Deploy an ArcToken contract with yield blacklist restrictions enabled.
Set up a yield token (e.g., USDC) for distribution.

Create token holders and restrict them

Mint ArcTokens to multiple addresses (e.g., Alice, Bob, Charlie).
Add all token holders to the yield blacklist using YieldBlacklistRestrictions.addToBlacklist().

Verify all holders are restricted

Confirm effectiveTotalSupply == 0 by checking that _isYieldAllowed() returns false for all holders.
All holders should be ineligible for yield distribution.

Attempt yield distribution

As a YIELD_DISTRIBUTOR_ROLE account, approve yield tokens to the ArcToken contract.
Call distributeYield(amount) with a significant amount of yield tokens.

Observe fund loss

The safeTransferFrom executes first, transferring yield tokens from caller to contract.
Function calculates effectiveTotalSupply == 0 and emits YieldDistributed(0, yieldTokenAddr).
Yield tokens are now permanently trapped in the ArcToken contract.

Confirm permanent loss

Check that yield tokens are stuck in the contract balance.
Verify no sweep/recovery functions exist in the contract to retrieve the tokens.
Funds remain inaccessible to all parties, including contract administrators.

Note: The same scenario applies to distributeYieldWithLimit() when called with startIndex == 0.

References

ArcToken.sol at lines referenced above: