What Is the Concept of “Systemic Risk” in DeFi Due to Flash Loans?

Systemic risk is the danger that the failure of one protocol, often triggered by a flash loan exploit, could cause a cascade of failures across interconnected DeFi protocols. Many protocols rely on the same underlying assets, price feeds, or composable services.

A major exploit can lead to mass liquidations, oracle failures, and a loss of confidence, potentially destabilizing the entire decentralized finance ecosystem.