An arbitrage attack involves exploiting price differences across various markets or protocols to generate profit, often by manipulating market conditions within a single transaction or block. In decentralized finance (DeFi), this typically occurs when an attacker uses flash loans to borrow substantial capital without collateral. They then execute a sequence of trades that alter asset prices, repaying the loan while retaining the gains. Such attacks capitalize on vulnerabilities in smart contract logic or oracle mechanisms, moving beyond simple market inefficiencies.
Context
News concerning arbitrage attacks consistently highlights the critical importance of rigorous smart contract auditing and secure oracle design within DeFi protocols. These events frequently cause substantial financial losses for affected platforms and their users, necessitating urgent protocol upgrades and security reviews. The recurring nature of these exploits underscores the continuous security challenges inherent in permissionless financial systems. Preventing such attacks remains a primary objective for developers aiming to build robust decentralized applications.
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