🚿Tutorial 56: Vulnerabilities Related to LP Tokens Being the Same as Reward Tokens
IIn decentralized finance (DeFi), liquidity providers (LPs) often stake their liquidity pool (LP) tokens in a staking contract to earn rewards, typically paid out in a reward token. However, an issue arises when the LP token used for staking is the same as the reward token being distributed. This can result in incorrect reward calculations due to the overlap between the tokens staked and the tokens distributed as rewards.
When the staking token (LP token) is the same as the reward token, reward calculations become distorted because the contract’s balance of the staked token increases every time new rewards are minted. This leads to an inflated LP supply, reducing the actual rewards that should be distributed to users. This vulnerability can significantly undercut the expected rewards for liquidity providers, leading to a loss of confidence and participation in the protocol.
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