Skip to content
This repository has been archived by the owner on May 26, 2023. It is now read-only.

Latest commit

 

History

History
66 lines (42 loc) · 2.63 KB

033.md

File metadata and controls

66 lines (42 loc) · 2.63 KB
Raw

obront

medium

Funding Rate calculation is not correct

Summary

According to the docs, the Funding Rate is intended to correspond to the gap between long and short positions that the Float Pool is required to make up. However, as its implemented, the totalFunding is calculated only on the size of the overbalanced position, leading to some unexpected situations.

Vulnerability Detail

According to the comments, totalFunding is meant to be calculated as follows:

totalFunding is calculated on the notional of between long and short liquidity and 2x long and short liquidity.

This makes sense. The purpose of the funding rate is to compensate the Float Pool for the liquidity provided to balance the market.

However, the implementation of this function does not accomplish this. Instead, totalFunding is based only on the size of the overbalancedValue:

uint256 totalFunding = (2 * overbalancedValue * fundingRateMultiplier * oracleManager.EPOCH_LENGTH()) / (365.25 days * 10000);

This can be summarized as 2 * overbalancedValue * funding rate percentage * epochs / yr.

This formula can cause problems, because the size of the overbalanced value doesn't necessarily correspond to the balancing required for the Float Pool.

For these examples, let's set:

  • fundingRateMultiplier = 100 (1%)
  • EPOCH_LENGTH() = 3.6525 days (1% of a year)

SITUATION A:

  • Overbalanced: LONG
  • Long Effective Liquidity: 1_000_000 ether
  • Short Effective Liquidity: 999_999 ether
  • totalFunding = 2 * 1_000_000 ether * 1% * 1% = 200 ether
  • Amount of balancing supplied by Float = 1mm - 999,999 = 1 ether

SITUATION B:

  • Overbalanced: LONG
  • Long Effective Liquidity: 1_000 ether
  • Short Effective Liquidity: 100 ether
  • totalFunding = 2 * 1_000 ether * 1% * 1% = 0.2 ether
  • Amount of balancing supplied by Float = 1000 - 100 = 900 ether

We can see that in Situation B, Float supplied 900X more liquidity to the system, and earned 1000X less fees.

Impact

Funding Rates will not accomplish the stated objective, and will serve to incentivize pools that rely heavily on Float for balancing, while disincentivizing large, balanced markets.

Code Snippet

https://github.com/sherlock-audit/2022-11-float-capital/blob/main/contracts/market/template/MarketCore.sol#L46-L58

Tool used

Manual Review, Foundry

Recommendation

Adjust the totalFunding formula to represent the stated outcome. A simple example of how that might be accomplished is below, but I'm sure there are better implementations:

uint256 totalFunding = ((overbalancedValue - underbalancedValue) * fundingRateMultiplier * oracle.EPOCH_LENGTH()) / (365.25 days * 10_000);