How Does Data Aggregation Help Prevent “Flash Loan” Attacks on DeFi Protocols?
Flash loan attacks often target DeFi protocols by manipulating the price on a single, low-liquidity exchange. Data aggregation prevents this by averaging the price across many high-liquidity exchanges.
A price manipulation on one small exchange will be diluted by the accurate prices from the numerous other sources, rendering the flash loan attack ineffective against the protocol's oracle price.
Glossar
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.
Aggregation
Process ⎊ Aggregation in financial markets involves collecting and combining data from multiple sources to form a single, representative value.
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.