• Total Prize Pool: $36,500 USDC
  • HM awards: $24,750 USDC
  • Analysis awards: $1,500 USDC
  • QA awards: $750 USDC
  • Bot Race awards: $2,250 USDC
  • Gas awards: $750 USDC
  • Judge awards: $3,600 USDC
  • Lookout awards: $2,400 USDC
  • Scout awards: $500 USDC
• Join C4 Discord to register
• Submit findings using the C4 form
• Read our guidelines for more details
• Starts October 24, 2023 20:00 UTC
• Ends October 30, 2023 20:00 UTC

The 4naly3er report can be found here.

Automated findings output for the audit can be found here within 24 hours of audit opening.

Note for C4 wardens: Anything included in the 4naly3er or the automated findings output is considered a publicly known issue and is ineligible for awards.

To get an overview of Ethena, please visit our Gitbook.

The goal of Ethena is to offer a permissionless stablecoin, USDe, to defi users and to offer users yield for being in our ecosystem. Unlike USDC where Circle captures the yield, USDe holders can stake their USDe in exchange to receive stUSDe, which increases in value relative to USDe as the protocol earns yield. (Similar to rETH increasing in value with respect to ETH)

Ethena provides an RFQ of how much USDe can be minted for a stETH amount. If user agrees to price, user signs the EIP712 signature and submits it to Ethena. stETH is traded for newly minted USDe at the rate specified by Ethena's RFQ and user's signature. The stETH is then sent to custodians and delegated to perps exchange, where an a USD amount of ETH perps equal to the USDe minted is shorted, creating a delta neutral position.

Users mint USDe with stETH, and Ethena opens an equvilant short ETH perps position on perps exchanges. stETH yields 3-4% annualized, while short ETH perps yield 6-8%. The combined long and short position daily yield is sent to an insurance fund, and then sent to the staking contract every 8 hours.

The long stETH and short ETH perps creates a position with value that's fixed to the time of it's creation. Imagine ETH = $2000, user sends in 10 stETH to mint 20000 USDe, and Ethena shorts 10 ETH worth of perps.

If the market goes down 90%, the long 10 stETH position is now worth $2000, down from $20000. While the short 10 ETH perps position has an unrealized P&L of $18000. If the user wishes to redeem his USDe, the short perps position can be closed to realize $18000 of profits, and buy 90 stETH. Along with the original 10 stETH, the user is returned 100 stETH, also worth $20000.

USDe.sol is the contract of our stablecoin. It extends ERC20Burnable, ERC20Permit and Ownable2Step from Open Zepplin. There's a single variable, the minter address that can be modified by the OWNER. Outside of Ownable2Step contract owner only has one custom function, the ability to set the minter variable to any address.

The minter address is the only address that has the ability to mint USDe. This minter address has one of the most powerful non-owner permissions, the ability to create an unlimited amount of USDe. It will always be pointed to the EthenaMinting.sol contract.

EthenaMinting.sol is the contract and address that the minter variable in USDe.sol points to. When users mint USDe with stETH (or other collateral) or redeems collateral for USDe, this contract is invoked.

The primary functions used in this contract is mint() and redeen(). Users who call this contract are all within Ethena. When outside users wishes to mint or redeem, they perform an EIP712 signature based on an offchain price we provided to them. They sign the order and sends it back to Ethena's backend, where we run a series of checks and are the ones who take their signed order and put them on chain.

By design, Ethena will be the only ones calling mint(),redeen() and other functions in this contract.

In the mint() function, order and signature parameters comes from users who wishes to mint and performed the EIP 712 signature. route is generated by Ethena, where it defines where the incoming collateral from users go to. The address in route we defined must be inside _custodianAddresses as a safety check, to ensure funds throughout the flow from users end up in our custodians within a single transaction. Only DEFAULT_ADMIN_ROLE can add custodian address.

Similar to minting, user performs an EIP712 signature with prices Ethena defined. We then submit their signature and order into redeem() function. The funds from redemption comes from the Ethena minting contract directly. Ethena aims to hold between $100k-$200k worth of collateral at all times for hot redemptions. This mean for users intending to redeem a large amount, they will need to redeem over several blocks. Alternatively they can sell USDe on the open market.

Some users trade through smart contracts. Ethena minting has the ability to delegate signers to sign for an address, using setDelegatedSigner. The smart contract should call this function with the desired EOA address to delegate signing to. To remove delegation, call removeDelegatedSigner. Multiple signers can be delegated at once, and it can be used by EOA addresses as well.

By setting a delegated signer, the smart contract allows both the order.benefactor and delegated signed to be the address that's ecrecovered from the order and signature, rather than just order.benefactor.

EthenaMinting.sol have crucial roles called the MINTER and REDEEMER. Starting with MINTER, in our original design, they have the ability to mint any amount of USDe for any amount of collateral. Given MINTER is a hot wallet and is an EOA address, we considered the scenario where this key becomes compromised. An attacker could then mint a billion USDe for no collateral, and dump them on pools, causing a black swan event our insurance fund cannot cover.

Our solution is to enforce an on chain mint and redeem limitation of 100k USDe per block. In addition, we have GATEKEEPER roles with the ability to disable mint/redeems and remove MINTERS,REDEEMERS. GATEKEEPERS acts as a safety layer in case of compromised MINTER/REDEEMER. They will be run in seperate AWS accounts not tied to our organisation, constantly checking each transaction on chain and disable mint/redeems on detecting transactions at prices not in line with the market. In case compromised MINTERS or REDEEMERS after this security implementation, a hacker can at most mint 100k USDe for no collateral, and redeem all the collateral within the contract (we will hold ~$200k max), for a max loss of $300k in a single block, before GATEKEEPER disable mint and redeem. The $300k loss will not materialy affect our operations.

Further down the line, there has been considerations to give external organisations a GATEKEEPER role. We expect the external organisations to only invoke the gatekeeper functions when price errors occur on chain. Abuse of this prvileage means their GATEKEEPER role will be removed.

The DEFAULT_ADMIN_ROLE, also our ethena multisig, is required to re-enable minting/redeeming. DEFAULT_ADMIN_ROLE also has the power to add/remove GATEKEEPERS,MINTER and REDEEMER.

DEFAULT_ADMIN_ROLE is the most powerful role in the minting contract, but is still beneath the OWNER role of USDe.sol, given that the owner can remove the minting contract's privilege to mint.

StakedUSDeV2.sol is where holders of USDe stablecoin can stake their stablecoin, get stUSDe in return and earn yield. Our protocol's yield is paid out by having a REWARDER role of the staking contract send yield in USDe, increasing the stUSDe value with respect to USDe.

This contract is a modification of the ERC4626 standard, with a change to vest in rewards linearly over 8 hours to prevent users frontrunning the payment of yield, then unwinding their position right after (or even in the same block). This is also the reason for REWARDER role. Otherwise users can be denied rewards if random addresses send in 1 wei and modifies the rate of reward vesting.

There's also an additional change to add a 14 day cooldown period on unstaking stUSDe. When the unstake process is initiated, from the user's perspective, stUSDe is burnt immediately, and they will be able to invoke the withdraw function after cooldown is up to get their USDe in return. Behind the scenes, on burning of stUSDe, USDe is sent to a seperate silo contract to hold the funds for the cooldown period. And on withdrawal, the staking contract moves user funds from silo contract out to the user's address. The cooldown is configurable up to 90 days.

Due to legal requirements, there's a SOFT_RESTRICTED_STAKER_ROLE and FULL_RESTRICTED_STAKER_ROLE. The former is for addresses based in countries we are not allowed to provide yield to, for example USA. Addresses under this category will be soft restricted. They cannot deposit USDe to get stUSDe or withdraw stUSDe for USDe. However they can participate in earning yield by buying and selling stUSDe on the open market.

FULL_RESTRCITED_STAKER_ROLE is for sanction/stolen funds, or if we get a request from law enforcement to freeze funds. Addresses fully restricted cannot move their funds, and only Ethena can unfreeze the address. Ethena also have the ability to repossess funds of an address fully restricted. We understand having the ability to freeze and repossess funds of any address Ethena choose could be a cause of concern for defi users decisions to stake USDe. While we aim to make our operations as secure as possible, interacting with Ethena still requires a certain amount of trust in our organisation outside of code on the smart contract, given the tie into cefi to earn yield.

Note this restriction only applied to staking contract, there are no restrictions or ability to freeze funds of the USDe stablecoin, unlike USDC.

Ethena utilises a gnosis safe multisig to hold ownership of its smart contracts. All multisig keys are cold wallets. We will require 7/10 or more confirmations before transactions are approved. This multisig is purely for the purpose of owning the smart contracts, and will not hold funds or do other on chain actions.

• Documentation: https://ethena-labs.gitbook.io/ethena-labs/10CaMBZwnrLWSUWzLS2a/
• Website: https://www.ethena.fi/
• Twitter: https://twitter.com/ethena_labs
• Discord: https://discord.com/invite/ethena

Smart contract files are located in /protocols/USDe/contracts

USDe.sol EthenaMinting.sol and the contract it extends, SingleAdminAccessControl.sol StakedUSDeV2.sol, the contract it extends, StakedUSDe.sol and the additional contract it creates USDeSilo.sol

Any file not listed above

stETH and our own USDe stablecoin.

Only our own ERC712 signed order in EthenaMinting.sol.

Ethereum mainnet

• USDe minter - can mint any amount of USDe tokens to any address. Expected to be the EthenaMinting contract
• USDe owner - can set token minter and transfer ownership to another address
• USDe token holder - can not just transfer tokens but burn them and sign permits for others to spend their balance
• StakedUSDe admin - can rescue tokens from the contract and also to redistribute a fully restricted staker's stUSDe balance, as well as give roles to other addresses (for example the FULL_RESTRICTED_STAKER_ROLE role)
• StakedUSDeV2 admin - has all power of "StakedUSDe admin" and can also call the setCooldownDuration method
• REWARDER_ROLE - can transfer rewards into the StakedUSDe contract that will be vested over the next 8 hours
• BLACKLIST_MANAGER_ROLE - can do/undo full or soft restriction on a holder of stUSDe
• SOFT_RESTRICTED_STAKER_ROLE - address with this role can't stake his USDe tokens or get stUSDe tokens minted to him
• FULL_RESTRICTED_STAKER_ROLE - address with this role can't burn his stUSDe tokens to unstake his USDe tokens, neither to transfer stUSDe tokens. His balance can be manipulated by the admin of StakedUSDe
• MINTER_ROLE - can actually mint USDe tokens and also transfer EthenaMinting's token or ETH balance to a custodian address
• REDEEMER_ROLE - can redeem collateral assets for burning USDe
• EthenaMinting admin - can set the maxMint/maxRedeem amounts per block and add or remove supported collateral assets and custodian addresses, grant/revoke roles
• GATEKEEPER_ROLE - can disable minting/redeeming of USDe and remove MINTER_ROLE and REDEEMER_ROLE roles from authorized accounts

Properties that should NEVER be broken under any circumstance:

EthenaMinting.sol - User's signed EIP712 order, if executed, must always execute as signed. ie for mint orders, USDe is minted to user and collateral asset is removed from user based on the signed values.

Max mint per block should never be exceeded.

USDe.sol - Only the defined minter address can have the ability to mint USDe.

• SOFT_RESTRICTED_STAKER_ROLE can be bypassed by user buying/selling stUSDe on the open market
• Line 343 in EthenaMinting.sol should be InvalidAddress() instead of InvalidAmount()
• maxRedeemPerBlock does not limit redemption in case of REDEEMER_ROLE key compromise unlike maxMintPerBlock, as the attacker can redeem all collateral held in the contract for 0 USDe, which does not increment maxRedeemPerBlock. This is by design, as limiting unlimited mints was the primary attack vector we wish to eliminate on key compromise and losing all funds currently in minting contract (which will be a <$200k amount) is an acceptable outcome.

- If you have a public code repo, please share it here: ethena.fi  
- How many contracts are in scope?: 6   
- Total SLoC for these contracts?: 588  
- How many external imports are there?: 4
- How many separate interfaces and struct definitions are there for the contracts within scope?: 6
- Does most of your code generally use composition or inheritance?: Inheritance   
- How many external calls?:    
- What is the overall line coverage percentage provided by your tests?: 70%
- Is this an upgrade of an existing system?: False
- Check all that apply (e.g. timelock, NFT, AMM, ERC20, rollups, etc.): ERC-20 Token
- Is there a need to understand a separate part of the codebase / get context in order to audit this part of the protocol?: False  
- Please describe required context: N/A
- Does it use an oracle?: No  
- Describe any novel or unique curve logic or mathematical models your code uses:  None
- Is this either a fork of or an alternate implementation of another project?: No   
- Does it use a side-chain?: No, ethereum mainnet only
- Describe any specific areas you would like addressed: Any attack that results in misplacement of funds or denial of service.

forge build
forge test

Enable tracing and logging to console via

forge test -vvvv