Flash Loan Oracle Attacks

Flash loan oracle attacks involve using large, temporary amounts of borrowed capital to manipulate the price of an asset within a single transaction block. The attacker uses the borrowed funds to trade against a liquidity pool, significantly shifting the price, and then uses that manipulated price to execute a profitable action elsewhere, such as borrowing more assets or triggering a liquidation.

The flash loan is then repaid within the same transaction, leaving no trace of the capital used for the manipulation. This attack highlights the vulnerability of protocols that use spot prices from decentralized exchanges as their primary oracle.

Defending against this requires the use of time-weighted average prices or other mechanisms that are resistant to short-term price spikes.