no bidder has incentive to bid the Auction except doing last-minute MEV due to fixed endBlock

[code423n4]

Lines of code

https://github.com/code-423n4/2023-06-stader/blob/main/contracts/Auction.sol#L48-L50

Vulnerability details

Impact

no bidder has incentive to bid the Auction except doing last-minute MEV due to fixed endBlock

Proof of Concept

The auction of SD Token has a fixed endBlock. bidder(s) would like to get SD Token with least ETH and they are all incentivized to just bid at the last block, leading to loss of protocol principle (during the auction).

    function createLot(uint256 _sdAmount) external override whenNotPaused {
        lots[nextLot].startBlock = block.number;
        lots[nextLot].endBlock = block.number + duration;
        lots[nextLot].sdAmount = _sdAmount;

Genearally, auction with fixed endtime has the known vulnerability of being bidden at the last block, essentially the validator/MEVer who has the ability to slip in transaction at that block has the highest likelihood to get the bid. This basically give them advantage, and would lead to the auction to end at lower price.

Tools Used

Recommended Mitigation Steps

Extend the final endBlock at each bid. This can be activated at the end of 1h for example to ensure the highest bidder can take the auction on a fairly manner.

Assessed type

MEV

[c4-judge]

Picodes marked the issue as primary issue

[c4-sponsor]

manoj9april marked the issue as sponsor acknowledged

[manoj9april]

MEV bots are welcome to be bidders.

[c4-sponsor]

manoj9april marked the issue as sponsor disputed

[Picodes]

This is a valid vulnerability in my opinion. MEV are of course welcome to bid but the problem is that the current auction system doesn't allow for a proper price discovery. From a game theory standpoint, no one has any interest in revealing their bid before the end of the auction, and when bidding you tend to not reveal your max bid but try to guess the "second-highest bid". Therefore the current design can quickly lead to a suboptimal final price as someone may have increased its bid given more time.

Note as well that it is currently relatively cheap to censor a transaction for a few blocks by bribing block builders. So with the current design value will may easily be lost trying to censor other bidders or bribing miners to be included.

[c4-judge]

Picodes marked the issue as selected for report

[manoj9april]

Yes, We agree with your point.
But for now we would prefer go with current simpler approach and improve based your recommendation in later phases.

I think this should be considered as low severity.

[c4-sponsor]

manoj9april marked the issue as sponsor acknowledged

[c4-sponsor]

manoj9april marked the issue as disagree with severity