Governance Attack Surface Review: Sky Lending

Target Protocol: Sky Lending (TVL: $5685.7M)

Governance Attack Surface Review – Sky Lending

Date: 21 Oct 2026

Prepared by: [Your Name], Senior DeFi Security Researcher & Smart‑Contract Auditor

Scope: Comprehensive analysis of the governance‑related attack surface of the Sky Lending protocol (Ethereum + L2 roll‑ups). TVL ≈ $5.69 B (as of the audit date).

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1. Executive Summary

Sky Lending is a high‑value, permissionless lending platform that relies on a token‑governed DAO (SKY token) for protocol upgrades, parameter changes, and treasury management. The protocol’s size and cross‑chain deployment (Ethereum mainnet, Optimism, Arbitrum) make its governance layer a prime target for adversaries seeking to exfiltrate funds, freeze markets, or manipulate interest‑rate models.

Our review focused on the on‑chain governance contracts, the off‑chain tooling (voting UI, relayer services, timelock), and the interaction points between governance and core lending modules (interest‑rate model, collateral factor, liquidation engine).

Key findings:

#	Category	Severity	Brief Description
1	Timelock & Execution	Critical (9/10)	Unrestricted execute path allows arbitrary calldata to any contract; missing re‑entrancy guard and no “onlyOwner” check on critical functions.
2	Proposal Parameter Validation	High (8/10)	No on‑chain sanity checks for newCollateralFactor, newInterestRateModel, or newLiquidationPenalty. Malicious proposals can set values that break market stability or enable flash‑loan attacks.
3	Voting Power Snapshot	High (7/10)	Snapshot taken at block‑height of proposal creation, but the snapshot function is public and can be called by an attacker to manipulate the recorded balance via a “balance‑shifting” flash‑loan.
4	Delegate Call Abuse	Medium (6/10)	Governance actions are executed via delegatecall to a library contract that is upgradeable via the DAO itself. A compromised proposal can replace the library with malicious code.
5	Cross‑Chain Governance Relay	Medium (6/10)	Relayer contracts that forward proposals from L1 to L2 lack proper message authentication; a rogue relayer can inject or drop proposals.
6	Off‑Chain UI & Signature Verification	Medium (5/10)	The voting UI signs messages client‑side and forwards them to a relayer. The relayer does not verify the EIP‑712 domain separator, opening a replay‑attack vector across chains.
7	Emergency Pause / Circuit Breaker	Low (4/10)	The emergency pause can be triggered only by a multi‑sig wallet that is itself governed. No “guardian” role exists, limiting rapid response to governance exploits.
8	Governance Token Upgradeability	Low (3/10)	SKY token is upgradeable via a proxy pattern but the upgrade function is gated only by the DAO; no external timelock, making a malicious proposal a single‑point failure.

Overall, the aggregate governance risk score for Sky Lending is 7.5 / 10 (High). The most pressing issues are the unrestricted timelock execution and lack of on‑chain parameter validation, both of which could be leveraged to drain funds or permanently lock the protocol.

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2. Identified Attack Vectors

2.1 Unrestricted Timelock Execution (Critical)

• Contract(s): SkyTimelock.sol, GovernanceExecutor.sol
• Vulnerability: execute(address target, uint256 value, bytes calldata data) is callable by any address after the delay period, without a onlyGovernor modifier.
• Impact: An attacker who gains a majority of voting power (or exploits a flash‑loan to temporarily acquire it) can queue a malicious proposal that, after the timelock, calls execute to invoke any function on any contract—including upgradeTo on proxy contracts, transfer on the treasury, or setCollateralFactor on markets.
• Exploit Path:
  1. Acquire >50 % of SKY voting power via flash‑loan of SKY (or via token‑swap manipulation).
  2. Submit a proposal that queues a call to execute(treasury, 0, abi.encodeWithSignature("transfer(address,uint256)", attacker, X)).
  3. Wait the timelock (default 2 days) – the attacker can keep the voting power by re‑entering the market after the proposal is queued.
  4. After delay, call execute and drain funds.

2.2 Missing Parameter Validation in Governance Proposals (High)

• Contract(s): MarketConfigurator.sol, InterestRateModel.sol
• Vulnerability: Functions setCollateralFactor(uint256), setReserveFactor(uint256), setInterestRateModel(address) have no range checks or no “onlyGovernor” guard beyond the generic proposal execution.
• Impact: A malicious proposal can set collateral factors to 0 % (making all positions instantly under‑collateralized) or set interest rates to extreme values, triggering mass liquidations and forcing users to repay at unfavorable rates.
• Exploit Example: Set collateralFactor = 0 for a high‑TVL market (e.g., ETH). All borrowers become instantly liquidatable; an attacker can front‑run liquidations and capture the collateral.

2.3 Public Snapshot Function (High)

• Contract(s): SkyToken.sol (ERC‑20 with snapshot extension)
• Vulnerability: snapshot() is public and can be called by anyone at any time. The snapshot ID is stored in the proposal struct, but the snapshot is taken after the proposal is created.
• Impact: An attacker can perform a flash‑loan of SKY, call snapshot(), submit a proposal, then return the loan. The snapshot records the inflated balance, granting the attacker voting power for the entire voting period.
• Exploit:
  1. Borrow large amount of SKY via a flash‑loan.
  2. Call snapshot() → snapshot ID = N.
  3. Submit proposal referencing snapshot N.
  4. Repay flash‑loan. The snapshot still records the inflated balance, giving the attacker >50 % voting power.

2.4 Delegatecall Library Upgrade via DAO (Medium)

• Contract(s): GovernanceExecutor.sol uses delegatecall to GovernanceLib.sol. The library address is stored in a mutable storage slot and can be changed via a DAO proposal (upgradeGovernanceLib(address)).
• Vulnerability: No additional checks (e.g., hash of expected bytecode) before swapping the library.
• Impact: A malicious proposal can replace the library with a contract that contains a hidden backdoor (e.g., selfdestruct the treasury). Because the library runs in the context of the executor, it can manipulate any storage slot, including the DAO’s own admin address.

2.5 Cross‑Chain Governance Relay Weakness (Medium)

• Contract(s): L1toL2Relay.sol, L2toL1Relay.sol
• Vulnerability: Relayers rely on a simple msg.sender == trustedRelayer check, but the trusted relayer address is hard‑coded and can be overridden by a DAO proposal without a timelock.
• Impact: An attacker who gains control of the relayer (or deploys a malicious contract that masquerades as the relayer) can inject proposals only visible on L2, bypassing L1 scrutiny. This enables “L2‑only” governance attacks that affect markets deployed exclusively on L2.

2.6 Off‑Chain UI Signature Replay (Medium)

• Component: Front‑end voting dApp (React) + RelayerService.sol
• Vulnerability: The relayer verifies signatures using ecrecover but does not include the chain ID or a unique nonce in the signed payload.
• Impact: A signed vote on Optimism can be replayed on Ethereum (or vice‑versa), allowing an attacker to double‑count votes or manipulate quorum calculations.

2.7 Emergency Pause Lacks Guardian (Low)

• Contract(s): EmergencyPause.sol
• Vulnerability: Only the DAO can trigger pause(); there is no “guardian” address with immediate pause rights.
• Impact: In the event of a governance exploit, the community must first pass a proposal to pause the protocol, which may be too slow to prevent damage.

2.8 Governance Token Upgradeability (Low)

• Contract(s): SKYTokenProxy.sol + SKYTokenImplementation.sol
• Vulnerability: Upgrade function upgradeTo(address newImpl) is gated only by onlyGovernor. No external timelock or multi‑sig.
• Impact: A malicious proposal can replace the token implementation with a contract that mints unlimited SKY, diluting governance and enabling further attacks.

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3. Prioritized Technical Recommendations

Priority	Recommendation	Affected Component(s)	Rationale & Implementation Details
Critical	Restrict Timelock Execution – Add onlyGovernor (or onlyTimelockExecutor) modifier to execute() and enforce a minimum delay of 7 days for any call that modifies treasury or market parameters.	SkyTimelock.sol, GovernanceExecutor.sol	Prevents arbitrary post‑delay execution by any address. Use OpenZeppelin’s TimelockController pattern with role‑based access.
Critical	Introduce Multi‑Sig Guardian – Deploy a 3‑of‑5 multi‑sig “Guardian” contract with immediate pause() rights, separate from the DAO.	EmergencyPause.sol	Allows rapid response to governance exploits while preserving DAO sovereignty for normal upgrades.
High	Add On‑Chain Parameter Bounds – Enforce sensible ranges (collateralFactor ≤ 0.9, reserveFactor ≤ 0.5, interestRate ≤ 5× baseRate) and require a proposal‑specific validation step before queuing.	MarketConfigurator.sol, InterestRateModel.sol	Mitigates malicious parameter changes that could destabilize markets.
High	Make Snapshot Private & Auto‑Taken – Move snapshot creation inside the proposal creation flow (snapshot() called internally) and make the function internal. Store the snapshot ID in the proposal struct at creation time.	SkyToken.sol, Governance.sol	Eliminates flash‑loan snapshot manipulation.
Medium	Library Upgrade Safeguards – Require a two‑step upgrade: (1) proposeLibraryUpgrade(address newLib) → timelocked 7 days, (2) acceptLibraryUpgrade() after delay. Additionally, verify the new library’s bytecode hash against a whitelist.	GovernanceExecutor.sol, GovernanceLib.sol	Prevents immediate replacement of delegatecall target with malicious code.
Medium	Secure Cross‑Chain Relayer – Replace msg.sender check with EIP‑712 signed messages from a set of authorized relayer keys. Store relayer keys in a timelocked DAO‑controlled registry.	L1toL2Relay.sol, L2toL1Relay.sol	Guarantees authenticity of cross‑chain messages and prevents rogue relayer injection.
Medium	EIP‑712 Domain & Nonce in Vote Signatures – Extend the voting payload to include chainId, proposalId, and a per‑voter nonce. The relayer must verify the full domain before counting the vote.	Front‑end, RelayerService.sol	Stops replay attacks across chains and double‑voting.
Low	Add Timelock to Token Upgrade – Require a separate timelock (e.g., 3 days) for any upgradeTo call on the SKY token proxy, distinct from the DAO’s normal proposal flow.	SKYTokenProxy.sol	Reduces risk of a single malicious proposal upgrading the token to a mintable version.
Low	Audit & Harden DAO Quorum Logic – Ensure quorum is calculated based on snapshot balances only, and that the quorum threshold cannot be lowered below a safe minimum (e.g., 4 % of total supply).	Governance.sol	Prevents quorum‑draining attacks that could let a tiny attacker pass proposals.

Implementation Roadmap (Suggested Timeline)

Phase	Duration	Milestones
Phase 1 – Immediate Hardening (0‑2 weeks)	- Restrict execute() - Add multi‑sig guardian - Private snapshot & auto‑capture
Phase 2 – Parameter & Upgrade Safeguards (2‑6 weeks)	- On‑chain bounds for market parameters - Two‑step library upgrade with bytecode hash verification
Phase 3 – Cross‑Chain & UI Hardening (6‑10 weeks)	- Signed relayer messages - EIP‑712 domain + nonce for voting signatures

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