Submitted by zzykxx, also found by 0x007, GoatedAudits, 0xCiphky, jokr, mt030d, fyamf, LessDupes, and GalloDaSballo
The protocol allows to deposit ETH/WETH (or the specific chain native currency) on a supported L2 in order to mint ezETH tokens, this is the process:
Theoretically, the amount of xezETH tokens minted during step 1 should be the same as the amount of ezETH tokens minted during step 3, but because on both steps the tokens are minted at the current valuation, and the valuation changes over time, there will be a discrepancy between the amount of xezETH and ezETH tokens in circulation.
This is an issue because XERC20Lockbox::withdraw() always exchanges xezETH for ezETH 1:1.
The price of ezETH is expected to increase over time. This will create a situation where there will be more xezETH in circulation than ezETH, rendering some xezETH worthless and impossible to redeem for ezETH.
A situation in which the ezETH valuation decreases instead of increasing is also problematic, because the protocol will mint less xezETH than it should. 
The discrepancy will become bigger and bigger with time.
As an example, lets assume ezETH valuation is currently 1 ETH:
The situation now is the following:
Alice can at best redeem 0.5 xezETH in exchange for 0.5 ezETH, and the remaining 0.5 xezETH is worthless. The amount of value she can redeem is the correct one, (1 ETH), but now there are xezETH in circulation that are not backed by ezETH.
The protocol should track the amount of xezETH tokens minted via xRenzoDeposit::deposit() on the L2 and mint the equivalent amount of ezETH tokens on L1 when xRenzoBridge::xReceive() is executed by passing the necessary data on the xcall() to Connext.
If this is implemented its possible for the valuation of ezETH tokens to change instantly after xRenzoBridge::xReceive() is executed, this is because the amount of ezETH tokens is not minted based on the current valuation anymore. As explained in other reports, the protocol will be subject to instant ezETH valuation changes (increase/decrease) no matter what (rewards, slashing, penalties), and should gracefully handle these situations via appropriate deposit and withdrawals queues.
jatinj615 (Renzo) acknowledged and commented:
alcueca (judge) commented:
0xTenma (warden) commented:
jatinj615 (Renzo) commented:
0xCiphky (warden) commented:
