Idle Finance

1 Executive Summary

This report presents the results of our engagement with Idle Finance to review Idle Dynamic Tranches.

The review was conducted by Nicholas Ward and Shayan Eskandari over the course of 20 person-days in June & July 2021.

2 Scope

The original review of 10 person-days began with commit hash d94ee7194e8cb17db13b16c338f3e780b62f5435 and incorporated commit hash 26d190539dec83c603edc9b5a903ce9b29b33a07, which provided a fix for an issue discovered independently by the development team. The complete list of files in scope for the initial review can be found in the Appendix. Due to the limited time available for the review, this was a best effort code review and does not cover the full extent of the codebase.

Note that many of the contracts in the scope call functions in the idleToken contracts which are out of the scope of the audit. We briefly reviewed the implementation of the Idle governance token to better understand the system.

Due to complexity of many of the calls (e.g. harvest(), flashloan(), etc) and the integration of many external DeFi projects(e.g. Compound, Uniswap, etc) the validity of the calculations and the code flow using purely manual review is close to impossible. We suggest an extensive integration and fuzzing test suites as an addition to the findings and recommendations in this report.

A second 10 person-day review focused largely on the IdleCDO contract. This review began with commit 1cf2b76bcda56807a35162ef4a65bcba0b6250e0 and incorporated commit ff0b69380828657f16df8683c35703b325a6b656.

A Mythx analysis report can be viewed here.

3 System Overview

Idle finance is comprised of many modules surrounding the main contract IdleCDO.sol. This includes ERC20 contracts for the Tranches and the interfaces for reward tokens, as well as Strategy contracts which will interact with different lending protocols. Many of the core functionality calls into IdleTokenGovernance.sol implementation, such as pricing and Idle token functionality.

The following is an overview of the Idle Finance contracts. The harvest() method was used to illustrate some of the contract interactions involved.

Contracts are depicted as boxes. Public reachable interface methods are outlined as rows in the box. The 🔍 icon indicates that a method is declared as non-state-changing (view/pure) while other methods may change state. A yellow dashed row at the top of the contract shows inherited contracts. A green dashed row at the top of the contract indicates that the contract is used in a usingFor declaration. Modifiers used as ACL are connected as yellow bubbles in front of methods.

4 Recommendations

/// @notice Emergency method, tokens gets transferred to the governanceRecoveryFund address
/// @param _token address of the token to transfer
/// @param _value amount to transfer
function transferToken(address _token, uint256 _value) external onlyOwner nonReentrant {
  IERC20Upgradeable(_token).safeTransfer(governanceRecoveryFund, _value);
}

  return (_contractTokenBalance(_strategyToken) * strategyPrice() / (10**(strategyTokenDecimals))) + _contractTokenBalance(token);
}

function virtualBalance(address _tranche) public view returns (uint256) {
  return IdleCDOTranche(_tranche).totalSupply() * virtualPrice(_tranche) / ONE_TRANCHE_TOKEN;
}

5 Security Specification

This section describes, from a security perspective, the expected behavior of the system under audit. It is not a substitute for documentation. The purpose of this section is to identify specific security properties that were validated by the audit team.

5.1 Actors

The relevant actors are listed below with their respective abilities:

• Owner

  • (Deployer) upgrade all smart contracts (GuardedLaunchUpgradable: SafeERC20Upgradeable, ReentrancyGuardUpgradeable, OwnableUpgradeable)
  • Set flags to allow withdrawals for AA/BB tranches
  • Set flags to allow setSkipDefaultCheck and setRevertIfTooLow to change the system checks for default strategy and enable the check if redeemed amount during liquidations is enough
  • Can set strategy contracts to update the strategy used and potentially changing the lending protocol used
  • Change the guardian, rebalancer, fee reciever addresses
  • Change the fee, and unlent percentages
  • Change the Ideal range defining the range for AA/BB rewards
  • Change the incentive tokens used in the system
  • Change the tranche Rewards contract addresses
  • Can call emergencyShutdown() to pause deposits and redeems for all classes of tranches
  • Can pause and unpause the contracts
  • Can call harvest() to lend user funds in the lending provider through the IIdleCDOStrategy and update tranches incentives
  • Can call liquidate() to redeem underlyings from the lending provider
  • Transfer all “left over” tokens in the contracts (Strategy, TrencheRewards) to any address
  • Can set the coolingPeriod that a user needs to wait since his last stake before the unstake will be possible

• Guardian

  • Can call emergencyShutdown()
  • Can transfer funds to governanceRecoveryFund address
  • Can pause and unpause the contracts

• Rebalancer

  • Can call harvest()
  • Can call liquidate()

• IdleCDO AA/BB Tranche Token holders

  • Withdraw AA or BB tokens (if allowed by owner), which burns their tranche token and redeems their principal + interest
  • Can stake in the Tranche Reward contract. Note that if a user adds more stake later on, the coolingPeriod will restart
  • Can unstake if coolingPeriod is passed. If the contract is paused, “unstake” will skip the claim of the rewards
  • Can claim all the expected rewards

• underlying token holders

  • Deposit tokens and mint AA or BB Tranche Tokens

• feeReceiver

  • Receives fees through _depositFees() at harvest

6 Findings

Each issue has an assigned severity:

• Minor issues are subjective in nature. They are typically suggestions around best practices or readability. Code maintainers should use their own judgment as to whether to address such issues.
• Medium issues are objective in nature but are not security vulnerabilities. These should be addressed unless there is a clear reason not to.
• Major issues are security vulnerabilities that may not be directly exploitable or may require certain conditions in order to be exploited. All major issues should be addressed.
• Critical issues are directly exploitable security vulnerabilities that need to be fixed.

function _deposit(uint256 _amount, address _tranche) internal returns (uint256 _minted) {
  // check that we are not depositing more than the contract available limit
  _guarded(_amount);
  // set _lastCallerBlock hash
  _updateCallerBlock();
  // check if strategyPrice decreased
  _checkDefault();
  // interest accrued since last depositXX/withdrawXX/harvest is splitted between AA and BB
  // according to trancheAPRSplitRatio. NAVs of AA and BB are updated and tranche
  // prices adjusted accordingly
  _updateAccounting();
  // mint tranche tokens according to the current tranche price
  _minted = _mintShares(_amount, msg.sender, _tranche);
  // get underlyings from sender
  IERC20Detailed(token).safeTransferFrom(msg.sender, address(this), _amount);
}

if (BBTotSupply == 0) {
  // if there are no BB holders, all gain to AA
  AAGain = gain;
} else if (AATotSupply == 0) {
  // if there are no AA holders, all gain to BB
  BBGain = gain;
} else {
  // split the gain between AA and BB holders according to trancheAPRSplitRatio
  AAGain = gain * trancheAPRSplitRatio / FULL_ALLOC;
  BBGain = gain - AAGain;
}

if (_tranche == AATranche) {
  // calculate gain for AA tranche
  // trancheGain (AAGain) = gain * trancheAPRSplitRatio / FULL_ALLOC;
  trancheNAV = lastNAVAA + (gain * _trancheAPRSplitRatio / FULL_ALLOC);
} else {
  // calculate gain for BB tranche
  // trancheGain (BBGain) = gain * (FULL_ALLOC - trancheAPRSplitRatio) / FULL_ALLOC;
  trancheNAV = lastNAVBB + (gain * (FULL_ALLOC - _trancheAPRSplitRatio) / FULL_ALLOC);
}

function harvest(bool _skipRedeem, bool _skipIncentivesUpdate, bool[] calldata _skipReward, uint256[] calldata _minAmount) external {
  require(msg.sender == rebalancer || msg.sender == owner(), "IDLE:!AUTH");

// approve the uniswap router to spend our reward
IERC20Detailed(rewardToken).safeIncreaseAllowance(address(_uniRouter), _currentBalance);
// do the uniswap trade
_uniRouter.swapExactTokensForTokensSupportingFeeOnTransferTokens(
  _currentBalance,
  _minAmount[i],
  _path,
  address(this),
  block.timestamp + 1
);

token = _guardedToken;
strategy = _strategy;
strategyToken = IIdleCDOStrategy(_strategy).strategyToken();
rebalancer = _rebalancer;

guardian = _owner;

address _currAAStaking = AAStaking;
address _currBBStaking = BBStaking;

idleCDO = _idleCDO;
tranche = _trancheToken;
rewards = _rewards;
governanceRecoveryFund = _governanceRecoveryFund;

6.6 IdleCDO.virtualPrice() & _updatePrices() too complicated to verify Minor

Resolution

These methods were revisited in the continuation of the original review and more time was allotted to them than was possible previously. Some refactoring also occurred during that time (see 6.2). However, the development team elected to maintain the general approach used in these functions.

The primary challenge in verifying their correctness remains, which is their heavy reliance on external interactions with contracts whose expected semantics are poorly defined.

Description

IdleCDO.virtualPrice() and _updatePrices() functions are used for many important functionality in the Idle system. They also have nested external calls to many other contracts (e.g. IdleTokenGovernance, IdleCDOStrategy and strategy token, IdleCDOTranche on both Tranche tokens, etc). This level of complexity for a vital function is not recommended and is considered dangerous implementation.

Examples

Recommendation

Consider refactoring the code to use less complicated logic and code flow.

Appendix 1 - Files in Scope

This audit covered the following files:

Appendix 2 - Disclosure

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