How Can an Oracle Be Manipulated in a “Flash Loan” Attack Scenario?

In a flash loan attack, an attacker takes a large, uncollateralized loan and uses it to temporarily manipulate the price of an asset on a decentralized exchange (DEX). If a smart contract relies on that single DEX for its oracle price feed, the manipulated price is fed into the contract, allowing the attacker to profit from an incorrect execution (e.g. a massive liquidation or arbitrage).

The entire sequence happens within one atomic transaction, making the manipulation instantaneous and often irreversible.