What Is a “Flash Loan” and How Does It Relate to Market Manipulation Risks on DEXs?
A flash loan is an uncollateralized loan that must be borrowed and repaid within the same blockchain transaction. While innovative, flash loans can be used to execute rapid, high-volume arbitrage or, more dangerously, to manipulate the price oracle of a DEX or lending protocol.
This manipulation often involves a temporary, massive price shift that is exploited for profit, posing a systemic risk to DeFi protocols.
Glossar
Systemic Risk
Contagion ⎊ Systemic risk within cryptocurrency, options trading, and financial derivatives manifests primarily through interconnectedness, where the failure of one entity can propagate rapidly across the system.
Flash Loan Exploit
Transaction ⎊ A flash loan exploit is a sophisticated, high-speed transaction sequence executed within a single block, leveraging the unique characteristic of uncollateralized loans in decentralized finance.
Flash Loan
Mechanism ⎊ A flash loan represents an uncollateralized loan executed entirely within a single blockchain transaction, enabling borrowers to access substantial capital for a very short duration, typically seconds.
Market Manipulation Risks
Anomaly ⎊ The detection of anomalous trading patterns within cryptocurrency derivatives markets, options, and financial derivatives represents a primary indicator of potential market manipulation.