Flash Loan Attack

A flash loan attack uses an uncollateralised loan that must be borrowed and repaid inside a single transaction to manipulate a protocol's own logic. Because the borrowed amount can be very large, an attacker can temporarily distort a thin liquidity pool or a price feed that reads from it, then trade against a lending market or derivative that trusts that price, and repay the loan from the profit. The vulnerability is rarely the flash loan itself, which is a legitimate DeFi tool used for arbitrage and refinancing; it is the protocol that relies on a manipulable price source. Common mitigations include using time-weighted average prices, multiple independent oracles, sanity limits on sudden price moves, and testing designs against large temporary capital.