Flash loans have become a primary attack vector for malicious actors looking to exploit DeFi protocols, and they are on the rise.
A flash loan is a crypto loan that is taken out and repaid within the same transaction. Under normal circumstances, the practice can carry out quick collateral swaps. It can also be used to conduct arbitrage trades and save on transaction fees. DeFi lending platform Aave pioneered and publicized this concept in 2020.
However, malicious actors have increasingly used this method to attack loopholes in some DeFi protocols.
In traditional finance, getting a loan requires an arduous amount of paperwork and proof of identity and income. But anyone can do it in DeFi. These loans are often uncollateralized. This means that the borrower does not have to risk any of their own assets.
Flash loans use smart contracts. They prevent funds from moving unless certain criteria are met. Furthermore, if the borrower…
