Caviar contest - supernova's results

Lines of code

https://github.com/code-423n4/2022-12-caviar/blob/0212f9dc3b6a418803dbfacda0e340e059b8aae2/src/Pair.sol#L417-L428 https://github.com/code-423n4/2022-12-caviar/blob/0212f9dc3b6a418803dbfacda0e340e059b8aae2/src/Pair.sol#L63-L99

Vulnerability details

Impact

The first LP can impact the pricing formula used in addQuote function . It will make the pricing of baseTokenShare and fractionalTokenShare favourable to the second LP.

Proof of Concept

Example:

The add function of Pair takes baseTokenAmount and fractionalTokenAmount as parameter. The first LP front runs the Pair and sets baseTokenAmount = 1; fractionalTokenAmount =1;

Now see the addQuote function

function addQuote(uint256 baseTokenAmount, uint256 fractionalTokenAmount) public view returns (uint256) {
        uint256 lpTokenSupply = lpToken.totalSupply();
        if (lpTokenSupply > 0) {
            // calculate amount of lp tokens as a fraction of existing reserves
            uint256 baseTokenShare = (baseTokenAmount * lpTokenSupply) / baseTokenReserves();
            uint256 fractionalTokenShare = (fractionalTokenAmount * lpTokenSupply) / fractionalTokenReserves();
            return Math.min(baseTokenShare, fractionalTokenShare);
        } else {
            // if there is no liquidity then init
            return Math.sqrt(baseTokenAmount * fractionalTokenAmount);
        }
    }

Here, as lpTokenSupply ==0 , it will return 1 ; Now lpTokenSupply will return 1 for second LP.

Second LP calls the add function again , In the addQuote function ,

baseTokenShare will be equal to the baseTokenAmount and similarly , fractionalTokenShare = fractionalTokenAmount

This phenomenon , ignores the other 2 variables in the formula( lpTokenSupply and baseTokenReserves ,fractionalTokenReserves ) , as they are 1 in value . Thus, it will be more advantageous for the second LP to mint the tokens, which will put , the rest of the future LPs at a disadvantage.

Tools Used

Manual

Recommended Mitigation Steps

• Mint some initial LP tokens to the Zero address in the constructor .
• In the addQuote function, when lpTokenSupply ==0 , enforce a require statement , to make the user deposit a minimum amount of baseTokenAmount that will make the calculation more robust to manipulation.