Case Study: ERC-20 + NFT Hybrid Token Audit — Infinite Recursive Loop and Unbounded Gas Attacks on Ethereum

What We Found

The ERC-20 transfer function triggers the NFT logic, and the NFT transfer function triggers the ERC-20 logic. Each one calls the other, which calls the first one again, in a loop that never ends. Every such transaction exhausts the gas limit and fails. Under many normal conditions, neither tokens nor NFTs can be transferred at all.

Why It Matters

All transfer transactions that touch both the ERC-20 and NFT layers will fail with an out-of-gas error. The token becomes functionally non-transferable.

What Should Be Done

Add a reentrancy guard or a dedicated 'in-transfer' flag to break the recursive cycle. Redesign the hook architecture so one layer does not call back into the other mid-execution.

What We Found

When you transfer multiple NFTs at once, the contract deducts ERC-20 tokens for each NFT individually and then deducts the total again at the end. You get charged twice: once per item and then once for the whole batch. Depending on the size of the batch, this can consume many times more tokens than the operation should cost.

Why It Matters

Users lose significantly more ERC-20 tokens than intended on every bulk NFT transfer. This makes bulk operations economically destructive and unpredictable.

What Should Be Done

Restructure the bulk transfer function to either batch the ERC-20 accounting once at the end or pass a flag to suppress per-item deductions inside the loop.

What We Found

When a new NFT is created, the contract calls an external address to generate the image parameters for that NFT. If that external address is changed by the owner or is itself compromised, an attacker can make minting fail for everyone (permanently blocking new NFTs) or inject arbitrary traits into newly minted items.

Why It Matters

A malicious or compromised external oracle can block all NFT minting or produce manipulated trait data for new tokens, undermining the integrity of the NFT collection.

What Should Be Done

Validate all return data from the external oracle before using it. Add a fallback minting path that works without the oracle. Restrict who can update the oracle address with a timelock.

What We Found

The functions that create or destroy large numbers of NFTs loop over every item one by one with no maximum count. If someone tries to mint or burn a large number of NFTs, the transaction can exceed the gas limit and fail. As the collection grows, even moderate-sized operations can become permanently impossible.

Why It Matters

Large mint or burn operations fail with out-of-gas errors. As the collection size grows, the gas cost increases until the functions become entirely unusable.

What Should Be Done

Add a maximum batch size parameter to all loop-based mint and burn functions. Consider an iterator-based pagination approach for large collections.