Upbeat Coffee Badger - _createMarket

[sherlock-admin4]

Upbeat Coffee Badger

Medium

_createMarket

Summary

https://github.com/sherlock-audit/2024-12-ethos-update/blob/c3a2b007d0ddfcb476f300f8b766808f0e3e2dfd/ethos/packages/contracts/contracts/ReputationMarket.sol#L318

The primary responsibility of the _createMarket function is to create a new reputation market based on the selected market configuration. However, the function always initializes the trust and distrust votes to 1, regardless of the selected market configuration (e.g., Default, Deluxe, or Premium), which should have distinct initial vote counts.

function _createMarket(
    uint256 profileId,
    address recipient,
    uint256 marketConfigIndex
) private nonReentrant {
    // ... Code omitted ...

    // Initialize the new market with 1 trust and 1 distrust vote
    markets[profileId].votes[TRUST] = 1;
    markets[profileId].votes[DISTRUST] = 1;
    
    // ... Code omitted ...
}

Mismatch with Expected Behavior

According to the contract’s comments and the definition of market configurations, different market configurations (e.g., Default, Deluxe, Premium) should have distinct initial vote counts to control market liquidity and price stability. For example:
• Default Configuration: 1 trust vote and 1 distrust vote (high volatility)
• Deluxe Configuration: 1,000 trust votes and 1,000 distrust votes (moderate price stability)
• Premium Configuration: 10,000 trust votes and 10,000 distrust votes (high price stability)

However, the current implementation of _createMarket ignores the marketConfigIndex and always sets the initial vote counts to 1, which is inconsistent with the expected behavior for different configurations.

Potential Impacts
1. Insufficient Market Liquidity: Regardless of the selected configuration, the market always starts with the lowest initial vote counts, leading to excessive price volatility and failing to reflect the higher liquidity and stability of advanced configurations.
2. Poor User Experience: Users may expect different market behaviors based on their chosen configuration. However, since the initial vote counts are not properly set, the market fails to meet these expectations.
3. Economic Model Failure: The LMSR model relies on the initial market state to dynamically adjust prices. Incorrect initial vote counts could cause price calculations and market behaviors to deviate from the intended design goals.

Root Cause

No response

Internal Pre-conditions

No response

External Pre-conditions

No response

Attack Path

No response

Impact

No response

PoC

No response

Mitigation

No response