How Can a Governance Attack Be Executed Using Flash Loans in DeFi?
A flash loan attack involves borrowing a massive amount of the governance token, often without collateral, executing a malicious governance vote, and repaying the loan all within a single blockchain transaction. The attacker uses the temporary voting power to pass a proposal that benefits them, such as draining a treasury or changing a fee structure.
The protocol must be vulnerable to this single-transaction manipulation.
Glossar
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.
Flash Loans
Mechanism ⎊ Flash loans are a type of uncollateralized loan in decentralized finance (DeFi) that must be borrowed and repaid within the same blockchain transaction.
Temporary Voting Power
Acquisition ⎊ Temporary Voting Power refers to the governance influence acquired by an entity for a limited duration, most commonly through the use of uncollateralized flash loans to borrow a protocol's native governance tokens for the span of a single transaction.
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.
Governance Attack
Exploitation ⎊ A Governance Attack within cryptocurrency, options, and derivatives contexts represents a manipulation of on-chain voting mechanisms to enact proposals detrimental to the protocol’s long-term viability or to extract value illegitimately.
Decentralized Exchanges
Access ⎊ These platforms offer permissionless entry to cryptocurrency and tokenized asset markets, democratizing capital deployment into novel financial structures.