Can a Deviation Threshold Be Bypassed by a Flash Loan Attack?
Yes, a deviation threshold can be bypassed by a flash loan attack if the attacker can use the loaned funds to cause a price movement that exceeds the threshold. The attacker manipulates the price on a low-liquidity exchange, forcing the oracle to submit a new, false price.
They then use this false price to profit from the vulnerable smart contract before repaying the flash loan. Robust oracles mitigate this by using a multi-source index price.
Glossar
Deviation Threshold
Constraint ⎊ Deviation Threshold functions as a critical constraint within oracle systems, defining the maximum permissible percentage difference between the current on-chain price and a newly calculated aggregate off-chain price.
Threshold
Barrier ⎊ A threshold, within cryptocurrency derivatives and options trading, fundamentally represents a price level that must be breached for a contract to become active or trigger a specific outcome.
Deviation
Variance ⎊ Deviation, within cryptocurrency, options, and derivatives, represents the squared difference between an observed value and its expected value, quantifying the dispersion of potential outcomes around a central tendency.
Flash Loan
Mechanism ⎊ A flash loan is a unique, uncollateralized loan mechanism in decentralized finance that allows users to borrow assets for a very short duration, typically within a single blockchain transaction.
Flash Loan Attack
Exploitation ⎊ A flash loan attack represents a market manipulation technique enabled by decentralized finance (DeFi) protocols, specifically leveraging the ability to borrow substantial capital without collateral requirements, contingent upon full repayment within a single transaction block.