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.
Flash loan attacks are used to exploit vulnerabilities in centralized price oracles.
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.
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