🥥Vulnerabilities from Manipulated Token Interactions Using ABI Decoding

Overview of the Vulnerability

Smart contracts in decentralized finance (DeFi) often rely on input data encoding and decoding to manage interactions with tokens, pools, and user balances. A critical vulnerability pattern can emerge when a contract mistakenly assumes that the token address passed in a function is authentic, without adequately verifying the origin of that token address or how it’s used. ABI decoding vulnerabilities enable attackers to manipulate data inputs—such as token addresses—in ways that allow them to trick the contract into performing unintended actions, such as unauthorized withdrawals or balance mismanagement.

This tutorial will explore the common vulnerabilities associated with manipulating token interactions via poorly handled ABI decoding and explain how attackers can exploit these flaws to drain a contract's funds or alter pool balances. We’ll also look at mitigation techniques to ensure secure token handling.

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How the Vulnerability Occurs

1. ABI Encoding and Decoding: Smart contracts often rely on the Ethereum Application Binary Interface (ABI) to encode and decode input data. This process allows for the transformation of complex data types (e.g., token addresses, amounts) into byte format for transmission between contracts. Solidity's abi.decode is used to convert the raw input data back into usable data types within the contract. However, vulnerabilities arise when this decoding process is poorly handled.

2. Manipulating Token Addresses in Function Calls: Attackers can manipulate token addresses in calldata through extra data appended after the regular function arguments. When a contract does not explicitly validate the token address or relies on assumptions about the input data structure, the attacker can trick the contract into interacting with a different token than intended.

3. Exploitation via ABI Decoding: Using the abicoder v2, attackers can pass manipulated calldata that appends arbitrary token addresses. This may cause the contract to incorrectly map token balances or transfer amounts for the wrong token. In some cases, the attacker can pass a newly minted token they control, leading to unauthorized withdrawals from a pool containing valuable tokens like USDC or ETH.

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Example Attack Scenario

Here’s how an attacker could exploit this vulnerability in a generalized DeFi protocol managing token pools and user balances:

Scenario:

• A smart contract offers users the ability to deposit and withdraw tokens from a liquidity pool. The contract expects users to pass the token address and the amount they wish to deposit or withdraw.

• The contract uses abi.decode to extract the token address from the calldata, without checking whether the token is valid for the operation (e.g., by comparing it to the pool’s known tokens).

Steps in the Exploit:

1. Craft a Custom Token: The attacker creates a new ERC20 token with a small supply. Let’s call this AttackerToken.

2. Deposit AttackerToken with Manipulated Calldata: The attacker uses a function such as deposit() and provides AttackerToken as the token address. However, in the calldata, they append the address of a more valuable token like USDC to the end of the data.

3. Bypass Token Validation: Due to poor token validation in the contract’s abi.decode() process, the contract mistakenly believes the attacker has deposited USDC (or another valuable token) into the pool. In reality, only AttackerToken was transferred.

4. Withdraw Real Tokens: The attacker then calls withdraw(), instructing the contract to transfer USDC (or another valuable token) to their address. Since the contract believes the attacker has deposited USDC (due to the calldata manipulation), it transfers the USDC from the pool to the attacker, leaving the pool underfunded and allowing the attacker to drain the contract’s funds.

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Key Vulnerable Patterns

1. Unchecked Token Address Decoding: The core issue arises when the contract does not validate the token address passed via calldata, especially when relying on ABI decoding mechanisms. Without proper checks, the contract may be tricked into interacting with tokens that the user never deposited or even tokens that do not belong to the protocol.

2. Manipulated Calldata: The vulnerability leverages the ability to append extra data to calldata. When contracts rely solely on abi.decode to extract parameters without validating or sanitizing the data, attackers can append additional data, such as a different token address, to manipulate contract logic.

3. Memory Safety Issues: When calldata is not properly verified, memory safety issues can arise, allowing the attacker to reference a different token than what was initially passed in the transaction. This can lead to incorrect updates in the pool’s balance storage or unauthorized withdrawals.

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Mitigation Strategies

To prevent these types of vulnerabilities, developers must implement several key strategies to safeguard against manipulated token interactions:

1. Explicit Token Validation

Always verify the authenticity of the token address before performing operations on it. Rather than relying solely on the token address passed by the user, contracts should compare it against a known whitelist of supported tokens.

Conclusion

The vulnerability pattern of manipulating token interactions via abi decoding is critical in DeFi systems, where improper handling of calldata can lead to unauthorized fund withdrawals or token mismanagement. By appending extra data to function calls and manipulating how contracts interpret token addresses, attackers can exploit poorly secured smart contracts to drain funds.

To mitigate these risks, developers must implement strict token validation, sanitize calldata after ABI decoding, and enforce clear mappings between pools and their corresponding tokens. These techniques ensure that token interactions are properly authenticated, reducing the risk of malicious calldata manipulation and safeguarding funds within the protocol.