Flash Loan Attacks are a type of DeFi attack where a cyber thief takes out a Flash Loan from a lending protocol and uses it in conjunction with various types of gimmickry to manipulate the market in their favor.
This is the most popular form of a DeFi hack which we have seen time and time again. In May 2021, PancakeBunny lost around $200 million due to a flash loan attack.
The reason why Flash Loans are so popular is that they require practically zero capital to pull off.
An attacker can borrow a huge amount of capital via a flash loan and use it to flood a contract to doctor the value of a token pair.
This results in slippage and unfair arbitrage opportunities. Following this, the attacker pays back the loan and then pockets the excess amount. This could be many millions of $ worth, and though the preparation time will be huge, the actual attack happens in less than a minute.