mStable 1.1

1 Executive Summary

ConsenSys Diligence has conducted an audit of the mStable 1.1 protocol. mStable is a protocol for creating “meta assets” (mAssets) that are backed by baskets of tokenized assets of the same peg, such as stablecoins or commodities (referred to as “bAssets”). mAssets are always backed 1:1. bAssets supplied by users are automatically deposited into lending platforms (currently Aave and Compound). mAsset holders who stake in mStable’s SAVE contract earn 100% of the yield from lending platforms plus fees generated by users swapping between bAssets in the basket. The first mAsset, mUSD, is already active on the Ethereum mainnet and currently holds $56m in reserves.

The review was conducted over the course of 3 1/2 weeks, from July 1st to July 24th by Bernhard Mueller and Valentin Wuestholz. A total of 35 person-days were spent. The audit consisted of:

• A detailed manual review of the codebase with a focus on generic smart contract security bugs as well as protocol-specific security issues;
• An in-depth fuzzing campaign to verify key security properties of the mStable protocol.

Mitigations and feedback on the audit report were reviewed from July 29th to July 30th. All major issues have been resolved. Some non-blocking minor will be addressed in future releases.

1.1 Results and Observations

• Code quality is high and the code is well-documented. Test coverage is outstanding with near-100% branch coverage. The code adheres to best practices and does not contain trivial bugs. However, it appears that some planned features are only partially implemented, leading to some dead code as well as unused variables and enum values that make the code more difficult to understand than necessary - this should be cleaned up in later iterations but doesn’t necessitate any urgent updates.

• It is apparent that the mStable team has put effort into considering threat vectors and possible failure modes. Planned functionality for re-collateralization in case of permanent loss (when an asset in the basket permanently loses its peg) has not yet been implemented. However, permanent loss is capped via max basket weights and mStable has contingency plans for manually handling basket failures.

• Some security issues were discovered during this audit, two of which were independently reported via the bug bounty program which was ongoing at the same time as this audit. All major issues have been addressed on in the current mainnet version.

2 Scope

Our review focused on the commit hash 6faf3a2387439271e8bbab4ebb74942e0645974c. The list of files in scope can be found in the Appendix.

2.1 Objectives

The following priorities were identified for our review:

1. Ensure that the system is implemented consistently with the intended functionality, and without unintended edge cases.
2. Identify known vulnerabilities particular to smart contract systems, as outlined in our Smart Contract Best Practices, and the Smart Contract Weakness Classification Registry.
3. Verify assumptions related to the core basket logic (minting, redeeming, balances) and review newly added functionality such as the rewards contracts.

3 System Overview

The audited system consisted of a set of modular, upgradeable smart contracts referred to as “modules” that are interconnected via an configurable registry (the “Nexus”) that identifies each module via a bytes32 key. The Nexus itself is immutable.

3.1 mAsset

The mAsset is an ERC20 token backed 1:1 by a basket of bAssets of the same peg. A single mAsset is composed of several modules: The mAsset ERC20 token with functionality for depositing bAssets and minting or redeeming mAssets, a BasketManager that holds the basket configuration and exposes governance functionality (e.g. marking an asset as below peg), and a ForgeValidator that validates attempts to mint or redeem mAssets.

3.2 Savings Contract

The mStable savings smart contract allows mAsset holders to lock up their mAsset and receive the interest and swap fees generated from the Basket proportional to the amount of tokens locked.

3.3 Staking Rewards

The staking rewards contracts, which at the time of writing this report were not yet deployed on mainnet, will allow users to earn META tokens in return for staking LP tokens (such as Uniswap or Balancer pool tokens). mStable uses the StakingRewards contracts originally developed by Synthetix with some modifications. Notably, mStable has added the capability of locking up tokens in a rewards vault instead of airdropping them directly to users, and the capability of also rewarding users with a secondary token (e.g. liquidity mining rewards from another platform).

3.4 Meta Token

Meta (MTA) is an ERC20 token issued as a reward to liquidity providers and will allow holders to take part in governance (via a future Aragon DAO). MTA will also serve as collateral of last resort in case a basket becomes permanently undercollateralised. However, both the DAO and recollerateralisation mechanism are medium-term roadmap items and will not launch with the current iteration of the system.

The token is based on a standard OpenZeppelin mintable ERC20 implementation with role-based access (MinterRole) that has been extended to interface with the mStable governance system. Specifically, the contract maintains a list of minters that can be modified by the governor address configured in the mStable Nexus.

3.5 Governance and Upgrades

Most mStable components are upgradeable via governance decision. mStable’s implementation is based on OpenZeppelin’s ProxyAdmin with an added one-week time delay. The system governor can propose upgrades to any modules and execute the upgrades after the one week period has passed.

4 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.

4.1 Actors

The relevant actors are listed below with their respective abilities:

Users

• Mint mAssets by depositing bAssets into the basket
• Redeem mAssets for specific bAssets (if basket weights permit) or propotionate amounts of the bAssets in the basket
• Swap bAssets at a 1:1 rate
• Deposit mAssets to the SAVE contract to earn swap fees and interest returned by the integrated lending pools

Governor

The system governor has the privilege of upgrading and initializing smart contracts (modules) in the mStable system. They also can:

• Transfer governance to another address
• Add & remove bAssets to / from an mAsset
• Mark a basket as “failed” to stop minting, redeeming and swapping in the basket
• Change swap fees and other configuration options
• “Lock” modules to mark them as non-upgradeable
• Manage whitelist of fund managers responsible for handling staking rewards

Fund Manager

Fund managers are capable of sending ERC20 tokens (in this context, usually MTA rewards) to the StakingRewards contract.

4.2 Trust Model

Currently, governance functions are approved via a Gnosis multisig smart contract controlled by the mStable team. Users must trust the mStable team not to abuse administrative functions.

Smart contract updates enforce a one week delay during which users can opt out of the system. However, it would still be possible for admins to drain users’ funds, for instance by adding an arbitrary (worthless) ERC20 token with 100% max weight and swapping it for the real assets in the basket.

This trust requirement will exist until governance rights are transferred to a DAO which is planned for a later iteration.

4.3 Important Security Properties

The following is a non-exhaustive list of security properties that were verified in this audit

• Loss of collateral or stealing of funds from the mAsset, resulting in it becoming under-collateralised
• Loss of collateral or unfair payouts in any REWARD contracts​
• Unfair payouts through SAVE, MINT, REDEEM or SWAP functionalities
• Manipulating or circumvention of mStable governance mechanism​
• Locking or freezing of any of the mStable contracts or inability to upgrade
• Ineffective or error prone forge validation mechanisms

5 Automated property checking and fuzzing

As part of the audit, we performed several fuzzing campaigns using Harvey, our in-house greybox fuzzer for smart contracts (see https://arxiv.org/pdf/1905.06944.pdf for more details), to check six custom properties. Five of these properties capture critical correctness and security properties outlined in the audit brief provided by the mStable team. In order to fuzz the entire contract system, we used mStable’s existing deployment scripts to set up an initial state for the fuzzer containing the following contracts:

• Mock1 (under test)
• Mock2 (under test)
• Mock3 (under test)
• Mock4 (under test)
• MockAToken1 (under test)
• MockAToken2 (under test)
• MockAToken3 (under test)
• MockAave (under test)
• MockCToken (under test)
• Nexus (under test)
• ForgeValidator
• DelayedProxyAdmin
• mUSD (under test)
• mUSD impl.
• BasketManager (under test)
• BasketManager impl.
• AaveIntegration
• CompoundIntegration
• SavingsManager
• SavingsContract (under test)
• StakingRewards
• StakingToken1
• StakingRewardsWithPlatformToken
• StakingToken2
• PlatformToken
• Meta (under test)
• RewardsVault
• RewardsDistributor

We extended the deployment scripts to distribute mock tokens to several known users such that they could interact with the system after approving the mUSD contract. We also made a small number of changes to the code to improve the effectiveness of the fuzzer.

For checking the properties, we selected a subset of all contracts as being “under test” (see above). The fuzzer was set up to invoke functions of these contracts directly. However, functions in many other contracts (ForgeValidator, mUSD impl., etc.) were also invoked indirectly during our fuzzing campaigns.

We formalized the following (informal) properties and instrumented the contracts with corresponding checks:

• P1: the total value of bAssets held in the vaults should always be greater or equal to the total supply of an mAsset (* the collateralisation ratio)
• P2: the bAsset quantities present in the Platform Integrations should always be greater or equal to the amounts written to storage in the BasketManager
• P3: actors should never receive more output than the input (at 1:1 ratio) for operations such as minting, swapping, and redeeming
• P4: only the mAsset and BasketManager are allowed to withdraw and deposit from the platform integrations
• P5: the platform integrations should never return more than is asked for to the receiver
• P6: exchange rate in the savings contract is ever increasing

Our final 24-hour fuzzing campaign was able to detect a property violation for P2. The “issues” section describes this finding in more detail. The fuzzer was not able to violate any of the other properties.

The graphs below provide an indication of the instruction and basic block transition coverage achieved by Harvey over time. After 24 hours, Harvey achieved the following coverage:

• EVM instruction coverage: 62002
• Path coverage: 11231
• EVM basic block transition coverage: 9026

6 Issues

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.

_settleRedemption(_recipient, _mAssetQuantity, props.bAssets, bAssetQuantities, props.indexes, props.integrators, false);

// 1. Only collect interest if it has been 30 mins
uint256 timeSinceLastCollection = now.sub(previousCollection);
if(timeSinceLastCollection > THIRTY_MINUTES) {

quantityDeposited = _amount;

if(_isTokenFeeCharged) {
    // If we charge a fee, account for it
    uint256 prevBal = _checkBalance(cToken);
    require(cToken.mint(_amount) == 0, "cToken mint failed");
    uint256 newBal = _checkBalance(cToken);
    quantityDeposited = _min(quantityDeposited, newBal.sub(prevBal));
} else {
    // Else just execute the mint
    require(cToken.mint(_amount) == 0, "cToken mint failed");
}

emit Deposit(_bAsset, address(cToken), quantityDeposited);

basketManager.increaseVaultBalance(bInfo.index, integrator, quantityDeposited);

uint256 deposited = IPlatformIntegration(_integrator).deposit(_bAsset, quantityTransferred, _erc20TransferFeeCharged);

uint256 balance = IPlatformIntegration(integrations[i]).checkBalance(b.addr);
uint256 oldVaultBalance = b.vaultBalance;

// accumulate interest (ratioed bAsset)
if(balance > oldVaultBalance && b.status == BassetStatus.Normal) {
    // Update balance
    basket.bassets[i].vaultBalance = balance;

uint256 colRatio = StableMath.min(props.colRatio, StableMath.getFullScale());

// Ensure payout is related to the collateralised mAsset quantity
uint256 collateralisedMassetQuantity = _mAssetQuantity.mulTruncate(colRatio);

require(bAsset.vaultBalance == 0, "bAsset vault must be empty");

require(_measurementMultiple >= 1e6 && _measurementMultiple <= 1e10, "MM out of range");

require(extrapolatedAPY < MAX_APY, "Interest protected from inflating past maxAPY");

IPlatformIntegration(_integration).checkBalance(_bAsset);

IPlatformIntegration(_integrators[i]).withdraw(_recipient, bAsset, q, _bAssets[i].isTransferFeeCharged);

require(bAssetToPToken[_bAsset] == address(0), "pToken already set");

uint256 bAsset_decimals = CommonHelpers.getDecimals(_bAsset);

require(decimals >= 4 && decimals <= 18, "Token must have sufficient decimal places");

function setTransferFeesFlag(address _bAsset, bool _flag)

/** @dev All details needed to Forge with multiple bAssets */
struct ForgePropsMulti {
    bool isValid; // Flag to signify that forge bAssets have passed validity check
    Basset[] bAssets;
    address[] integrators;
    uint8[] indexes;
}

if(!props.isValid) return 0;

/** @dev Status of the Basset - has it broken its peg? */
enum BassetStatus {
    Default,
    Normal,
    BrokenBelowPeg,
    BrokenAbovePeg,
    Blacklisted,
    Liquidating,
    Liquidated,
    Failed
}

_bAsset.status == BassetStatus.Liquidating ||
_bAsset.status == BassetStatus.Blacklisted

if(atLeastOneBecameOverweight) return (false, "bAssets must remain below max weight", false);

require(weightSum >= 1e18 && weightSum <= 4e18, "Basket weight must be >= 100 && <= 400%");

* @dev Throws if the total Basket weight does not sum to 100

Appendix 1 - Files in Scope

This audit covered the following files:

Appendix 2 - Artifacts

This section contains some of the artifacts generated during our review by automated tools, the test suite, etc. If any issues or recommendations were identified by the output presented here, they have been addressed in the appropriate section above.

A.2.1 Test Coverage

Appendix 3 - Disclosure

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