What Is an Example of a Smart Contract Logic Flaw Exploitable by a Flash Loan?
A common flaw is a contract that uses a single, easily manipulated DEX for its price reference, such as a low-liquidity pool. An attacker uses a flash loan to buy a large amount of the asset on that DEX, artificially inflating the price.
The contract then reads this inflated price, allowing the attacker to, for example, borrow an excessive amount of a different asset using the temporarily overvalued collateral. The attacker repays the loan and keeps the borrowed assets.
Glossar
Smart Contract Logic Flaw
Vulnerability ⎊ A smart contract logic flaw represents a critical error in the underlying code that governs the financial operations of a decentralized derivatives or lending protocol, creating an exploitable pathway for malicious actors.
Flash Loan Exploit
Nature ⎊ A flash loan exploit represents a sophisticated attack vector in decentralized finance where malicious actors leverage the unique properties of flash loans to manipulate protocols for illicit gain.
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.
Flaw
Mechanism ⎊ A flaw within cryptocurrency, options trading, and financial derivatives often manifests as an exploitable inefficiency in the underlying protocol or market structure, creating opportunities for arbitrage or manipulation.