Block deposits at the asset floor when live LPs exist

src/contracts/AbstractARM.sol

@@ -786,11 +786,12 @@ abstract contract AbstractARM is OwnableOperable, ERC20Upgradeable, ReentrancyGu
         uint256 grossAssets = _availableAssets();
         uint256 feesAccruedMem = feesAccrued;
 
-        // Treat accrued fees as a senior liability. If gross assets no longer cover
-        // accrued fees plus the minimum native-liquidity floor, new deposits would be
-        // minted against the floor and backfill the shortfall, so block deposits.
-        bool atAssetFloor = feesAccruedMem + MIN_LIQUIDITY > grossAssets;
-        if (atAssetFloor && (feesAccruedMem != 0 || reservedWithdrawLiquidity != 0)) revert Insolvent();
+        // At the native-liquidity floor, a new deposit would either backfill senior liabilities
+        // or dilute live LPs after a real asset loss. Allow only the initial deposit, when the dead
+        // shares are the entire supply and no fees or withdrawals are outstanding.
+        bool atAssetFloor = feesAccruedMem + MIN_LIQUIDITY >= grossAssets;
+        bool hasLiveLps = totalSupply() > MIN_TOTAL_SUPPLY;
+        if (atAssetFloor && (hasLiveLps || feesAccruedMem != 0 || reservedWithdrawLiquidity != 0)) revert Insolvent();
 
         uint256 netAssets = atAssetFloor ? MIN_LIQUIDITY : grossAssets - feesAccruedMem;
         shares = assets * totalSupply() / netAssets;

test/invariants/EthenaARM/TargetFunctions.sol

@@ -84,10 +84,13 @@ abstract contract TargetFunctions is Setup, StdUtils {
     }
 
     function targetARMDeposit(uint256 amount, uint256 randomAddressIndex) external ensureExchangeRateIncrease {
-        // Mirror AbstractARM._deposit's Insolvent() guard: when the ARM sits at the asset floor
-        // (totalAssets() clamped to MIN_LIQUIDITY == 1e12), deposits revert if any senior liability
-        // (accrued fees OR reserved LP withdrawals) is outstanding. Skip those inputs instead of reverting.
-        if (assume(arm.totalAssets() > 1e12 || (arm.feesAccrued() == 0 && arm.reservedWithdrawLiquidity() == 0))) {
+        // Mirror AbstractARM._deposit's Insolvent() guard: at the asset floor, deposits are allowed
+        // only before any live LP shares exist and when there are no senior liabilities.
+        bool initialDeposit = arm.totalSupply() == DEFAULT_MIN_TOTAL_SUPPLY;
+        if (assume(
+                arm.totalAssets() > 1e12
+                    || (initialDeposit && arm.feesAccrued() == 0 && arm.reservedWithdrawLiquidity() == 0)
+            )) {
             return;
         }
         // Select a random user from makers

test/invariants/LidoARM/TargetFunction.t.sol

@@ -208,11 +208,13 @@ abstract contract TargetFunction is Invariant_LidoARM_Setup_Test {
         (address user, uint256 balance) = selectUserWithLiqudity(from);
         vm.assume(user != address(0)); // Ensure we found a user with liquidity
 
-        // Mirror AbstractARM._deposit's Insolvent() guard: at the asset floor (totalAssets() clamped to
-        // MIN_LIQUIDITY == 1e12) deposits revert when any senior liability (accrued fees or reserved LP
-        // redeems) is outstanding. Skip those inputs so strict-mode fuzzing does not fail on the revert.
+        // Mirror AbstractARM._deposit's Insolvent() guard: at the asset floor, deposits are allowed
+        // only before any live LP shares exist and when there are no senior liabilities.
         vm.assume(
-            lidoARM.totalAssets() > 1e12 || (lidoARM.feesAccrued() == 0 && lidoARM.reservedWithdrawLiquidity() == 0)
+            lidoARM.totalAssets() > 1e12
+                || (lidoARM.totalSupply() == MIN_TOTAL_SUPPLY
+                    && lidoARM.feesAccrued() == 0
+                    && lidoARM.reservedWithdrawLiquidity() == 0)
         );
 
         // Bound amount

test/unit/MultiAssetARM/concrete/Deposit.t.sol

@@ -97,22 +97,20 @@ abstract contract Deposit_Test is Unit_MultiAssetARM_Shared_Test {
         arm.deposit(LIQUIDITY_UNIT());
     }
 
-    function test_Deposit_WhenAccruedFeesExactlyBacked() public {
-        uint256 fees = _generateFees();
+    function test_Deposit_RevertWhen_AssetLossReachesFloorWithLiveLps() public {
+        firstDeposit(alice, DEFAULT_AMOUNT());
+        assertGt(arm.totalSupply(), MIN_TOTAL_SUPPLY, "live LP shares exist");
+        assertEq(arm.feesAccrued(), 0, "no accrued fees");
         assertEq(arm.reservedWithdrawLiquidity(), 0, "no reserved withdrawals");
 
-        _setArmBalances(fees + MIN_LIQUIDITY(), 0);
-
-        uint256 amount = LIQUIDITY_UNIT();
-        uint256 expectedShares = amount * arm.totalSupply() / MIN_LIQUIDITY();
-        _mint(liquidity, bobby, amount);
+        // Simulate a real loss that leaves only the native-liquidity floor backing live LP shares.
+        _setArmBalances(MIN_LIQUIDITY(), 0);
+        assertEq(arm.totalAssets(), MIN_LIQUIDITY(), "at asset floor");
 
+        _mint(liquidity, bobby, LIQUIDITY_UNIT());
+        vm.expectRevert(AbstractARM.Insolvent.selector);
         vm.prank(bobby);
-        uint256 shares = arm.deposit(amount);
-
-        assertEq(shares, expectedShares, "shares returned");
-        assertEq(arm.balanceOf(bobby), expectedShares, "bobby shares");
-        assertEq(arm.totalAssets(), MIN_LIQUIDITY() + amount, "net assets increase by deposit");
+        arm.deposit(LIQUIDITY_UNIT());
     }
 
     function _generateFees() internal returns (uint256 fees) {