What Is the Risk of a “Flash Loan Attack” on a DEX Liquidity Pool?

A flash loan attack exploits vulnerabilities in a DEX's smart contract, often involving a sudden, massive, uncollateralized loan (the flash loan) that is borrowed and repaid within a single transaction block. The attacker uses the borrowed funds to manipulate the price of an asset in the pool, execute a profitable trade (like an arbitrage), and then repay the loan, all before the transaction finalizes.

This can drain the pool or lead to a significant loss of assets.