A flash loan is a transaction in which a specific quantity of liquidity is borrowed and repaid in the same transaction or block.
What Is a Flash Loan?
There is no delay between borrowing and repaying the funds since everything is handled synchronously. Atomic composability is thus required for flash loans to operate, as everything must either settle or fail at the same time.
The most popular forms of DeFi assaults are flash loan attacks, which are the cheapest to carry out and the simplest to get away with. They’ve been making headlines since DeFi’s meteoric rise in the past year, and they’ve become much worse in 2021, with hundreds of millions of dollars in losses to date.
With a flash loan, a user can borrow as much as they want without any upfront costs. If you want to borrow $50,000 worth of ETH, for example, a lending protocol will provide it to you instantly, but that doesn’t imply it’s yours. You must do something with the borrowed funds to repay the debt and maybe pocket any remaining funds.
To make this work, the procedure must be quick, and the debt must be paid to the protocol promptly, otherwise, the transaction will be reversed. Because the commitment to pay your loan is enforced by a blockchain, a decentralized lender does not demand collateral from you.
Attackers of flash loans rely on devising new ways to distort the market while still adhering to the blockchain’s laws.
Some popular examples of flash loan attacks are the PancakeBunny attack, Alpha Homora Protocol hack, DeFi yield farming aggregator ApeRocket flash loan attack, and many others.
The lag in reaction times from makers of DeFi platforms is one of the most important aspects that allow exploiters to just get away with flash loan assaults. To avoid this from happening, automated tools should be used. OpenZeppelin Defender, a technology that allows project managers to identify smart contract vulnerabilities and other strange behavior, allowing them to respond quickly and neutralize threats.