USM Contract Defund Flaw: 64 Split Redemptions Yield More ETH Than One Large Withdrawal

ChainCatcher reports that the ethFromDefund() pricing logic in the defund() redemption function of the USM contract contains a defect. In calculating a single redemption, the function uses the arithmetic mean of the current FUM sell price and an estimated terminal FUM sell price to determine the payout. This algorithm, however, lacks split invariance. When a redemption is split into smaller transactions, the average-based calculation produces different results. Additionally, each redemption applies a state-shrinkage coefficient known as adjShrinkFactor and an integer rounding mechanism. After combining these factors, a fixed amount of FUM assets split into 64 separate small redemptions ends up yielding a much higher total amount of ether than one large redemption. In other words, the final extractable ETH is not linearly proportional to the redemption size; fragmentation changes the outcome. The report comes from ChainCatcher's market analysis newsflash, without further commentary on potential fixes or a timeline.