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Security Audit
Feburary 4, 2026
Version 1.0.0
Presented by 0xMacro
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 Janurary 1-5th 2026.
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.
The following is an aggregation of issues found by the Macro Audit team:
| Severity | Count | Acknowledged | Won't Do | Addressed |
|---|---|---|---|---|
| High | 2 | - | - | 2 |
| Medium | 1 | - | - | 1 |
| Informational | 2 | 2 | - | - |
Polynomial was quick to respond to these issues.
Our understanding of the specification was based on the following sources:
The following source code was reviewed during the audit:
435b19a3fddcb6cc7725644c4acbbd5ba4a2f664
Specifically, we audited the following contracts within this repository.
| Source Code | SHA256 |
|---|---|
| contracts/interfaces/IProfitShareModule.sol |
|
| contracts/interfaces/IYieldMarketFactoryModule.sol |
|
| contracts/interfaces/external/ISynthetixSystem.sol |
|
| contracts/modules/CoreModule.sol |
|
| contracts/modules/ProfitShareModule.sol |
|
| contracts/modules/YieldMarketFactoryModule.sol |
|
| contracts/storage/ProfitShare.sol |
|
| contracts/storage/YieldMarketFactory.sol |
|
| contracts/utils/MathUtil.sol |
|
| contracts/modules/core/UnsecuredCreditModule.sol |
|
| contracts/interfaces/IUnsecuredCreditModule.sol |
|
| contracts/storage/UnsecuredCredit.sol |
|
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.
Click on an issue to jump to it, or scroll down to see them all.
We quantify issues in three parts:
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. |
In ProfitShareModule, markets can deposit collateral, allowing to borrow assets secured by their collateral via depositStrategyCollateral() but there is no corresponding function that withdraws the deposited collateral. This results in any deposited collateral unable to be withdrawn, leading to assets stuck in the protocol.
Remediations to Consider
Add a withdrawMarketCollateral() function similar to the depositStrategyCollateral() function.
In YieldMarketFactoryModule the reportedDebt() function currently returns 0 for markets using unsecured credit. Interest is only reflected in the system when accrue() is manually called, which updates netIssuanceD18 with accrued interest. However, accrue() may not be called frequently, leading to stale debt values when:
This results in inaccurate debt accounting between accrue() calls, potentially causing unfair distributions to LPs and incorrect risk assessments.
Remediations to Consider
Change reportedDebt() to return real-time interest plus bad debt, rather than updated it via accrue().
When yield markets generate profits and want to distribute them to backing pools, the realizeProfit() function attempts to use either repayUnsecured() or depositMarketUsd().
In the case of the unsecured path, repayUnsecured() caps repayment at total debt. Once debt is fully repaid, excess profits cannot be distributed:
uint256 totalDebt = state.accruedInterestD18 + state.principalD18 + state.badDebtD18;
if (amountD18 > totalDebt) {
amountD18 = totalDebt; // Excess is ignored
}
Reference: UnsecuredCreditModule.sol#L204-207
When realizing profits, if in the unsecured state, then additional profits outside what was borrowed and the interest owed cannot be distributed this way, while when called the dev receives a portion of these profits, and the excess remains in the market, allowing for realizeProfit to be called repeatedly with any large amount allowing the dev to receive all assets in the market. In the case of the secured credit path, assets are distributed, however it results in a negative netIssuance, which increases the credit capacity of the market, and allows for
Remediations to Consider The intent is to distribute profits once unsecured credit has been paid off, and the market has switched to secured credit, however considering the resulting increase in credit capacity once distributed, a function should be added that distributes profits to backing pools without increasing credit capacity, without required the market to swap to its secured mode.
The UnsecuredCreditModule allows markets to borrow without correlation to pool backing. Available credit is determined by global and per-market caps, not pool collateral, but potential yield generated from these unsecured loans get distributed only to pools that back the market as it gets distributed via distributeDebtToPools(). This allows for unsecured markets to potentially borrow more than assets provided by backing pools, resulting in systemic risk for the entire protocol, not just backing pools if these assets are not paid off. Currently there is only one pool in the polynomial core protocol, which means all liquidity providers will be backing these unsecured markets, and take on the risk of default. If in the future more pools are added, allowing for the choice to back these unsecured markets, currently the systemic risk would still be present for these pools, yet they would not receive the proceeds.
If more pools are added in the future, consider capping the credit limit of unsecured loans based on the assets pools, or implement bad debt to only effect backing pools to limit the risks to only the pools backing these markets.
Unsecured credit is an opt‑in feature gated by owner controls and explicit caps (global + per‑market). Today there is a single pool, so all LPs implicitly back the system. As we expand to multi‑pool setups, we plan to scope unsecured exposure to backing pools only or cap unsecured credit based on pool‑provided collateral, so that non‑backing pools do not inherit the risk. This is a known design trade‑off and will be addressed alongside multi‑pool support.
Currently there is no method to handle cases where unsecured debt cannot be paid off, and how this bad debt gets updated and handled. Polynomial will add bad debt handling in the near future, but currently the protocol makes the assumption that the borrowed assets will be paid back.
Current design assumes full repayment of unsecured credit; explicit bad‑debt resolution is not yet implemented. We plan to add a bad‑debt framework (e.g., write‑offs and controlled socialization to backing pools) in a future upgrade. Until then, unsecured credit limits are kept conservative and admin‑controlled.
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.