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EGGS· USDC (ID 33)

This report pertains to EGGS · USDC on Sonic network (ID 33)

Disclaimer​

The risk report does not cover smart contract risks, all economic risks, or the risks of the underlying assets. Therefore, it should not be construed as a guarantee of safety. Silo v2 markets are permissionless to deploy. Choose markets carefully.

TL;DR​

  • EGGS is safe as collateral for borrowing USDC.
  • While EGGS is safe as collateral for borrowing USDC, borrowing EGGS has been disabled due to security concerns.
  • The value of EGGS is derived from the token contract and adjusted downward by 1.1%.
  • EGGS collateral value is expected to be undervalued, resulting in reduced user borrowing power.

How the Oracle Works​

The oracle uses a function in the EGGS smart contract to determine the value of EGGS in Sonic and adjusts it downward by 1.1% (reported as 98.9% of the token smart contract value). This adjustment accounts for the fact that EGGS can always be instantly redeemed for Sonic (S) via the borrow function, which incurs a 0.1% borrow fee and a 1% flash close fee, totaling 1.1%. To calculate the EGGS price in USDC, the custom oracle uses the wS/USD and USDC/USD Chainlink data feeds.

Expected Oracle Behavior​

The EGGS-to-Sonic (EGGStoSONIC) contract rate can never decrease, effectively serving as a “minimum spot price” for the EGGS token. This stable baseline value ensures that the EGGS value in the Silo lending market will almost always be lower than its value on decentralized exchanges (DEXs). While this gap between Silo’s lending market and DEX values poses no risk to USDC lenders, it may significantly undervalue users’ collateral in the Silo EGGS/USDC lending market.

The EGGS contract allows donations, which can instantly increase EGGS value. However, the increase is legitimate and irrevocable. As a result, the ability to donate to the contract does not affect the safety of EGGS as collateral for borrowing USDC. However, if borrowing were enabled for EGGS with USDC collateral, this could be an attack vector that impacts EGGS depositors.

Assessment​

We believe the oracle is safe to use for the following reasons:

  • The EGGStoSONIC value cannot decrease.

  • Donating to the EGGS token can intentionally raise the EGGS value, but this change is permanent and does not adversely affect USDC lenders. As EGGS cannot be borrowed in the lending market, there is no impact on EGGS depositors either.

  • Sonic (S) tokens held in the EGGS smart contract can only be withdrawn when legitimately borrowed against EGGS collateral.

  • If the EGGS value exceeds that on DEXs, arbitrageurs will correct the discrepancy between the contract-valued EGGS and its value on DEXs.

  • There are no admin controls related to minting functions.

  • There is no pause mechanism for EGGS-to-S redemption.

  • Sonic (S) locked in the EGGS contract cannot be removed by any admin.

Known Bugs and Fixes:
The following previously identified bugs in the EGGS contract have been resolved or do not affect its use as collateral in lending markets:

  1. Owner pause: Fixed via an irrevocable transfer of ownership to a contract that cannot pause the system.
  2. Owner minting/absconding: Fixed via an irrevocable transfer of ownership to a contract that cannot mint. Additionally, EGGS has reached its minting cap and can no longer be minted.
  3. Leverage conversion rate bug: This issue would not negatively impact a lending platform and is no longer possible since the mint cap has been reached.
  4. Backdoor to lower EGGStoSONIC value: This vulnerability has been fixed.

The Silo engineering team prepared the oracle research report. We thank DanielVF for reviewing the oracle pricing mechanism.

Documentation​