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ReserveLogic::_updateIndexes() assumes the utilization rate was constant the whole time when calculating the new borrows

MediumYieldoor·Sherlock · CLMM · 24th February 2025CodebaseM-2

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Summary

ReserveLogic::_updateIndexes() is as follows:

solidity
function _updateIndexes(DataTypes.ReserveData storage reserve) internal {
    uint256 newBorrowingIndex = reserve.borrowingIndex;
    uint256 newTotalBorrows = reserve.totalBorrows;

    if (reserve.totalBorrows > 0) {
        newBorrowingIndex = latestBorrowingIndex(reserve);
        newTotalBorrows = newBorrowingIndex * (reserve.totalBorrows) / (reserve.borrowingIndex);
    ...
}

Note that when calculating the newBorrowingIndex, it calls latestBorrowingIndex(reserve), which uses reserve.currentBorrowingRate, which was calculated at the last time the index was updated. However, in the mean time, the borrows have grown, increasing the utilization rate, which has increased the borrowing rate, but the one used was the past one, which is incorrect. To fix this, a better closed formula would be required, simultaneously calculating the new borrows as well as the current utilization rate, which depend on one another.

Root Cause

In ReserveLogic:155/156, new borrows use a stale utilization rate.

Internal Pre-conditions

None.

External Pre-conditions

None.

Attack Path

  1. Users borrow from the lending pool and their interest will be incorrect, smaller than it should be.

Impact

Depending on utilization, the impact can be very significant, however, it is likely to stay relatively constrained due to daily utilization or similar.

PoC

Borrow interest depends on the utilization rate. The utilization rate grows with borrows, so it can not stay constant when calculating the new borrows over time.

Mitigation

Implement a closed formula that calculates the new borrows and utilization rate correctly.