Oracle Manipulation Attack
An Oracle Manipulation Attack occurs when an adversary exploits the pricing mechanism of a decentralized finance protocol by influencing the data reported by an oracle. This often involves executing large trades on a thin, illiquid exchange that the oracle uses as a data source, thereby artificially skewing the reported price.
Once the oracle reflects the manipulated price, the attacker exploits the protocol by performing actions based on the false valuation, such as borrowing against overvalued collateral or liquidating healthy positions. These attacks exploit the gap between market liquidity and the protocol reliance on specific price feeds.
Mitigation strategies include using volume-weighted average prices or incorporating data from multiple high-liquidity exchanges.