Lines of code
<https://github.com/reserve-protocol/protocol/blob/27a3472d553b4fa54f896596007765ec91941348/contracts/p1/StRSR.sol#L496-L530&gt;

Vulnerability details

Note:
This issue deals with excess rsr that was seized from stRSR but is returned again.
The M-12 issue also deals with excess rsr.

However M-12 deals with the fact that not all rsr is returned to stRSR, whereas this issue deals with the fact that an attacker can steal rsr once it is returned to stRSR.

So while the issues seem to be similar they in fact are different.

They are separate issues. So I chose to report this separately with the NEW keyword.

Impact

rsr can be returned to stRSR after a seizure if not all seized rsr has been necessary to regain full collateralization.

This happens in the BackingManger.handoutExcessAssets function.

This excess rsr is then paid out to ALL stakers just like regular rsr rewards using the StRSR._payoutRewards function.

This is unfair. An attacker can abuse this behavior and stake rsr to profit from the returned rsr which is used to appreciate his stRSR.

It would be fair if the rsr was returned only to the users that had staked when the seizure occurred.

Proof of Concept

Think of the following scenario:

1. There are currently 100 stakers with an equal share of the 1000 rsr total that is currently in the stRSR contract.
2. A seizure occurs and 500 rsr are seized.
3. Not all rsr is sold and some (say 50 rsr) is returned to StRSR
4. The attacker can front-run the transaction that returns the rsr and become a staker himself
5. The attacker will profit from the returned rsr once it is paid out as reward. Say the attacker stakes 100 rsr. He now owns a share of 100 rsr / (500 rsr + 100 rsr) = 20%. This means he will also get 20% of the 50 rsr that are paid out as rewards.

Tools Used

VSCode

Recommended Mitigation Steps

Ideally, as I said above, the rsr should be returned only to the users that had staked when the seizure occurred.

With the current architecture of the stRSR contract this is not possible. There is no way to differentiate between stakers.

Also the scenario described is an edge and relies on a seizure to occur and rsr to be returned.

It seems unrealistic that 10% of the seized rsr is returned again. I think a number like 1% - 5% is more realistic.

But still if the amount of rsr that is seized is big enough, 1% - 5% can be a significant amount in terms of dollar value.

I estimate this to be Medium severity since an attacker can profit at the expense of other stakers and this behavior will decrease the willingness of users to stake as the risk of losing funds is increased.

This severly damages the incentives involved with staking. Stakers are incentivized to wait for seizures to occur and only then stake as they might profit from returned rsr.

I encourage the sponsor to further assess if there is a better way to return excess rsr.

---

The text was updated successfully, but these errors were encountered:

All reactions