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Polynomial A-5

Security Audit

april 16, 2024

Version 1.0.0

Presented by 0xMacro

Table of Contents

Introduction

This document includes the results of the security audit for Polynomial's smart contract code as found in the section titled ‘Source Code’. The security audit was performed by the Macro security team on March 13-18th 2024.

The purpose of this audit is to review the source code of certain Polynomial Solidity contracts, and provide feedback on the design, architecture, and quality of the source code with an emphasis on validating the correctness and security of the software in its entirety.

Disclaimer: While Macro’s review is comprehensive and has surfaced some changes that should be made to the source code, this audit should not solely be relied upon for security, as no single audit is guaranteed to catch all possible bugs.

Overall Assessment

The following is an aggregation of issues found by the Macro Audit team:

Severity Count Acknowledged Won't Do Addressed
High 1 - - 1
Low 1 - - 1

Polynomial was quick to respond to these issues.

Specification

Our understanding of the specification was based on the following sources:

Source Code

The following source code was reviewed during the audit:

Specifically, we audited the following contracts within this repository.

Source Code SHA256
markets/perps-market/contracts/modules/LimitOrderModule.sol

91a6a7c73e6cec48921027e4895c18fb75f6187a52e791efca18fc93d5b3503a

markets/perps-market/contracts/modules/OffchainAsyncOrderModule.sol

7358e479e37a02144332e35d40ad1bf0c21dfc227adf34bacaf9cdd40c1c6c1d

markets/perps-market/contracts/modules/OffchainLimitOrderModule.sol

66217d57157162340427e9019df7ac227306a97eea5c30cc5063a0262aa81602

markets/spot-market/contracts/storage/AsyncOrder.sol

320f0c43f35b2395a70f0ba6b21f378390099b18e83fb1879e81228586601642

markets/perps-market/contracts/storage/GlobalPerpsMarketConfiguration.sol

b95502c4b02f0c596b92dda53a67a15d59233494bb6291ce83bdd46b26a5203a

markets/perps-market/contracts/storage/LimitOrder.sol

e21f754310be224797bb4bc432b80a1e027560149ce7d810d83eef2e9d223142

markets/perps-market/contracts/storage/OffchainOrder.sol

fdd8b4819035bb145e01fb06c1aa1f900688951beb8140bf2d6c669e435f56ba

Note: This document contains an audit solely of the Solidity contracts listed above. Specifically, the audit pertains only to the contracts themselves, and does not pertain to any other programs or scripts, including deployment scripts.

Issue Descriptions and Recommendations

Click on an issue to jump to it, or scroll down to see them all.

Security Level Reference

We quantify issues in three parts:

  1. The high/medium/low/spec-breaking impact of the issue:
    • How bad things can get (for a vulnerability)
    • The significance of an improvement (for a code quality issue)
    • The amount of gas saved (for a gas optimization)
  2. The high/medium/low likelihood of the issue:
    • How likely is the issue to occur (for a vulnerability)
  3. The overall critical/high/medium/low severity of the issue.

This third part – the severity level – is a summary of how much consideration the client should give to fixing the issue. We assign severity according to the table of guidelines below:

Severity Description
(C-x)
Critical

We recommend the client must fix the issue, no matter what, because not fixing would mean significant funds/assets WILL be lost.

(H-x)
High

We recommend the client must address the issue, no matter what, because not fixing would be very bad, or some funds/assets will be lost, or the code’s behavior is against the provided spec.

(M-x)
Medium

We recommend the client to seriously consider fixing the issue, as the implications of not fixing the issue are severe enough to impact the project significantly, albiet not in an existential manner.

(L-x)
Low

The risk is small, unlikely, or may not relevant to the project in a meaningful way.

Whether or not the project wants to develop a fix is up to the goals and needs of the project.

(Q-x)
Code Quality

The issue identified does not pose any obvious risk, but fixing could improve overall code quality, on-chain composability, developer ergonomics, or even certain aspects of protocol design.

(I-x)
Informational

Warnings and things to keep in mind when operating the protocol. No immediate action required.

(G-x)
Gas Optimizations

The presented optimization suggestion would save an amount of gas significant enough, in our opinion, to be worth the development cost of implementing it.

Issue Details

H-1

Limit order price is used for PnL of entire position

Topic
Protocol Design
Status
Impact
High
Likelihood
High

For limit orders both long and short parties make a order of matching amount, but the price can be diverged from the current market price of the asset. The PnL is calculated for the change in position for the desired price on each side, however when settling the order the entire positions PnL is also evaluated at this desired price:

(runtime.pnl, , runtime.chargedInterest, runtime.accruedFunding, , ) = oldPosition.getPnl(
    order.acceptablePrice
);

Reference: OffchainLimitOrderModule.sol#L354-356

function getPnl(
    Data storage self,
    uint256 price
)
    internal
    view
    returns (
        int256 totalPnl,
        int256 pricePnl,
        uint256 chargedInterest,
        int256 accruedFunding,
        int256 netFundingPerUnit,
        int256 nextFunding
    )
{
    nextFunding = PerpsMarket.load(self.marketId).calculateNextFunding(price);
    netFundingPerUnit = nextFunding - self.latestInteractionFunding;
    accruedFunding = self.size.mulDecimal(netFundingPerUnit);

    int256 priceShift = price.toInt() - self.latestInteractionPrice.toInt();
    pricePnl = self.size.mulDecimal(priceShift);

    chargedInterest = interestAccrued(self, price);

    totalPnl = pricePnl + accruedFunding - chargedInterest.toInt();
}

Reference: Position.sol#L66-91

This results in the potential for an order to be filled at a extreme price that benefits a position when PnL is calculated at this arbitrary price.

Remediations to Consider

For calculating the whole positions PnL use the mark price rather than the limit order price to properly update the position.

L-1

Signature malleability

Topic
Signature
Status
Impact
High
Likelihood
Low

ecrecover() is known to be vulnerable to signature malleability attacks which can lead to signature input while maintaining the same signer. Typically it is suggested to use Openzeppelins ECDSA library, or a similar solution that handles signature malleability.

address signingAddress = ecrecover(digest, sig.v, sig.r, sig.s);

Reference: OffchainLimitOrderModule.sol#L502

Remediations to Consider

Handle signature malleability similar to how Openzeppelin does in ECDSA.

Disclaimer

Macro makes no warranties, either express, implied, statutory, or otherwise, with respect to the services or deliverables provided in this report, and Macro specifically disclaims all implied warranties of merchantability, fitness for a particular purpose, noninfringement and those arising from a course of dealing, usage or trade with respect thereto, and all such warranties are hereby excluded to the fullest extent permitted by law.

Macro will not be liable for any lost profits, business, contracts, revenue, goodwill, production, anticipated savings, loss of data, or costs of procurement of substitute goods or services or for any claim or demand by any other party. In no event will Macro be liable for consequential, incidental, special, indirect, or exemplary damages arising out of this agreement or any work statement, however caused and (to the fullest extent permitted by law) under any theory of liability (including negligence), even if Macro has been advised of the possibility of such damages.

The scope of this report and review is limited to a review of only the code presented by the Polynomial team and only the source code Macro notes as being within the scope of Macro’s review within this report. This report does not include an audit of the deployment scripts used to deploy the Solidity contracts in the repository corresponding to this audit. Specifically, for the avoidance of doubt, this report does not constitute investment advice, is not intended to be relied upon as investment advice, is not an endorsement of this project or team, and it is not a guarantee as to the absolute security of the project. In this report you may through hypertext or other computer links, gain access to websites operated by persons other than Macro. Such hyperlinks are provided for your reference and convenience only, and are the exclusive responsibility of such websites’ owners. You agree that Macro is not responsible for the content or operation of such websites, and that Macro shall have no liability to your or any other person or entity for the use of third party websites. Macro assumes no responsibility for the use of third party software and shall have no liability whatsoever to any person or entity for the accuracy or completeness of any outcome generated by such software.