How Magpie v2 Secured Reward Optimization While Safeguarding Liquidity Integrity

Magpie Protocol is built on a modular smart contract architecture that leverages the EIP-2535 Diamonds standard, enabling dynamic and flexible upgrades across its suite of functionalities. The protocol operates across multiple blockchain ecosystems, focusing on facilitating decentralized financial operations like token swaps, cross-chain asset transfers, and liquidity aggregation.

The Future of Decentralized Finance with Magpie

Magpie envisions transforming how users interact with DeFi protocols by creating a robust, multi-chain reward aggregation network. By focusing on scalability, automation, and user-centric tokenomics, Magpie aims to simplify DeFi participation while maintaining the highest standards of security and efficiency. This vision seeks to bridge gaps in liquidity mining and staking practices, enabling a more inclusive financial ecosystem that empowers both individual users and institutional participants.

Leveraging advanced blockchain technology, Magpie not only minimizes gas costs but also ensures secure and transparent reward mechanisms, setting a benchmark for sustainable growth within the DeFi landscape.

Addressing Magpie’s Security and Operational Challenges

Our audit uncovered several key issues, including re-entrancy vulnerabilities in reward aggregation, inadequate validation of external calls, and inefficiencies in tokenomics design.

To mitigate these, we introduced re-entrancy guards, implemented robust validation mechanisms for external calls, and refined the token distribution logic to ensure accuracy and fairness. Additionally, centralized dependencies in liquidity routing were decentralized, and the overall gas efficiency of the contract was optimized.

These critical improvements significantly enhanced Magpie’s security, operational reliability, and user trust, positioning the protocol as a leader in decentralized reward aggregation.

Magpie's Journey Through Our Audit Process

Our comprehensive audit was executed through the following steps:

1. Information Gathering
   • Collected and reviewed all relevant documentation, including whitepaper, technical specifications, and design documents.
   • Obtained a clear understanding of the Magpie Protocol's functionality and intended user interactions.
   • Discussed client concerns and specific areas of focus for the audit.
2. Manual Code Review:
   • Conducted a line-by-line review of the smart contract code, focusing on:
     • Vulnerability identification: Searching for known vulnerabilities like reentrancy, front-running, integer overflows, and access control issues, etc.
     • Logic flaws: Identifying inconsistencies or unintended behaviours in the code logic.
     • Solidity best practices: Compliance with secure coding standards and adherence to established guidelines.
3. Functional Testing:
   • Developed and executed a comprehensive set of test cases covering various user interactions and edge cases.
   • Leveraged tools like Hardhat and Ganache to deploy and test the smart contract locally.
4. Automated Testing:
   • Employed AI analysis tools like QuillShield to identify vulnerabilities through automated code scanning.
   • Utilized symbolic execution tools like Mythril to explore various code execution paths and uncover potential attack vectors.
   • Integrated unit tests are written by the Magpie Protocol team to verify specific contract functions and their behaviour.
5. Reporting & Remediation:
   • Prepared a detailed report outlining all identified vulnerabilities, categorized by severity and potential impact.
   • Provided clear recommendations for fixing each vulnerability, including code snippets and best practices.
   • Collaborated with the Magpie Protocol team to prioritize and address the identified issues.
   • Conducted additional verification testing after vulnerability fixes were implemented.

QuillAudits' Strategic Approach to Magpie V2 Security Audits

Our approach to auditing Magpie V2 involved a combination of threat modeling, a security-first mindset, and extensive testing. We used both white-box and black-box testing methods to ensure a thorough assessment, maintaining transparency and clear communication with the Magpie V2 team throughout the process.

Comprehensive Audit Discoveries and Remediation Strategies

Our comprehensive audit of these contracts revealed a total of 16 issues, categorised by severity:

• High Severity Issues (2): These issues pose a moderate risk and should be addressed promptly.
• Medium Severity Issues (6): These issues pose a moderate risk and should be addressed promptly.
• Low Severity Issues (4): These issues pose a moderate risk and should be addressed promptly.
• Informational Issues (4): These findings provide valuable insights and recommendations for improvement.

The critical issues discovered during the audit are particularly interesting and demonstrate the complexity of the Magpie v2 Protocol's smart contracts.

Here is a breakdown of the critical vulnerabilities in audit discoveries and remediation strategies:

Audit Findings

Our extensive audit of the Magpie Protocol identified several critical vulnerabilities, which were promptly addressed by the development team. Below are the key findings and remediation strategies.

1. Refund Address Vulnerability in MagpieCelerBridgeV2

• Discovery: The swapIn function in the MagpieCelerBridgeV2 contract allows refundAddresses to be set to msg.sender, which could be manipulated by attackers to redirect funds to unintended addresses.
• Impact: This vulnerability could result in significant financial loss for users by allowing attackers to hijack the refund process and divert funds to malicious addresses.

2. Lack of Bridge Slippage Protection in MagpieStargateBridgeV3

• Discovery: The MagpieStargateBridgeV3 contract lacks a mechanism to protect users from price slippage during bridge transactions.
• Impact: In periods of high market volatility, this could lead to users receiving fewer tokens than expected, undermining trust in the bridge service and potentially causing financial losses.

3. Native Token Bridging Limitation in MagpieCelerBridgeV2

• Discovery: The MagpieCelerBridgeV2 contract currently only supports ERC20 tokens and wrapped native tokens, preventing the bridging of native tokens directly.
• Impact: This limitation restricts the functionality of the protocol, reducing its versatility and potentially frustrating users who wish to bridge native tokens across chains.

4. Permit Front-running Risk in MagpieRouterV3

• Discovery: The permit function in MagpieRouterV3 is susceptible to front-running attacks, where an attacker could intercept and execute the transaction before the intended recipient.
• Impact: This could result in unauthorized fund transfers, compromising user security and trust in the protocol.

5. Signature Replay Vulnerability in MagpieRouterV3

• Discovery: The swapWithMagpieSignature function in MagpieRouterV3 lacks a nonce in the signed message, making it vulnerable to replay attacks.
• Impact: Attackers could replay valid signatures multiple times, allowing them to execute unauthorized transactions and potentially steal funds.

6. Lack of User Binding in swapWithMagpieSignature

• Discovery: The swapWithMagpieSignature function does not bind the signature to a specific user, enabling any user to use a valid signature to trigger unauthorized swaps.
• Impact: This oversight exposes the protocol to unauthorized swaps, undermining user confidence and increasing the risk of malicious actions.

7. Ineffective Emergency-Stop Mechanism in MagpieRouterV3

• Discovery: Although the Pausable library is implemented, there is no public function to allow the protocol owner to pause the contract in case of an emergency.
• Impact: The inability to pause the contract in a critical situation could delay the response to potential threats, increasing the risk of financial losses or system compromise.

8. Revert Risk in executeMessageWithTransferRefund

• Discovery: The executeMessageWithTransferRefund function in MagpieCelerBridgeV2 may fail due to reasons like gas limitations or token transfer failures, potentially locking funds and preventing refunds.
• Impact: Users could experience funds being locked indefinitely, disrupting their ability to complete transactions or retrieve their assets.

Remediation Strategies

Magpie Protocol's development team demonstrated impressive responsiveness to our findings. The following remediation actions were taken:

1. Refund Address Vulnerability: The team implemented additional checks to prevent manipulation of the refundAddresses field and ensure that funds are directed to the correct addresses.
2. Bridge Slippage Protection: A slippage protection mechanism was introduced, ensuring that users are protected from unfavorable price fluctuations during bridge transactions.
3. Native Token Bridging: Support for native token bridging was expanded, allowing users to bridge native tokens seamlessly across chains.
4. Permit Front-running Risk: The permit function was updated to include measures preventing front-running attacks, securing the transaction process.
5. Signature Replay Protection: A nonce mechanism was added to the swapWithMagpieSignature function, preventing replay attacks and ensuring signature integrity.
6. User Binding for Swap Function: The swapWithMagpieSignature function was updated to bind signatures to specific users, preventing unauthorized use of valid signatures.
7. Emergency-Stop Function: An emergency-stop function was implemented, allowing the protocol owner to pause operations in case of security threats or system vulnerabilities.
8. Revert Risk Mitigation: The team added fail-safes to the executeMessageWithTransferRefund function, ensuring that any transaction failure does not lock funds and that users can retrieve their assets.

Impressed by our findings and recommendations, the Magpie Protocol developers promptly addressed all identified vulnerabilities.

Through our collaborative efforts, the Magpie Protocol project has become significantly more secure, ensuring the protection of user funds.

The Magpie Protocol’s smart contracts underwent a comprehensive security audit, which identified and mitigated critical vulnerabilities, safeguarding user funds and enhancing platform stability. This case study highlights the importance of proactive security measures for blockchain-based projects, particularly those involving financial assets. By conducting thorough audits and addressing the identified issues, the Magpie Protocol team has made significant strides in securing its platform and maintaining user trust.