How Can an Oracle Be Manipulated in a Price Feed Attack?

An oracle can be manipulated by feeding it false price data. This often occurs when the oracle relies on a single, easily influenced data source, such as a low-liquidity decentralized exchange (DEX).

An attacker can execute a flash loan to temporarily swamp the DEX's liquidity, drastically altering the token price for a brief period. The oracle records this incorrect price, which is then used by a DeFi protocol to execute a malicious action, like under-collateralized borrowing or liquidation.