Flash Loan Attack

A flash loan attack uses the large, temporary borrowing power a flash loan (see Kaavon's "Flash Loan" glossary definition) provides to manipulate a vulnerable protocol within a single transaction, most commonly by briefly distorting a thinly liquid price feed or oracle (see Kaavon's "Oracle Manipulation" glossary definition) enough to trigger an advantageous, mispriced action elsewhere — such as borrowing against collateral that's been artificially inflated in value, or triggering a favorable liquidation — before repaying the flash loan and keeping the ill-gotten profit, all within that same atomic transaction.

Flash loan attacks are possible specifically because flash loans let an attacker temporarily command far more capital than they actually own, without needing any meaningful capital of their own at risk, dramatically lowering the practical barrier to attempting a price-manipulation attack that would otherwise require genuinely large capital reserves. Defenses include using manipulation-resistant price sources like a TWAP oracle (see Kaavon's "TWAP Oracle" glossary definition) rather than an instantaneous spot price, and designing protocol logic that doesn't trust any single transaction's price data in isolation.