Definition ∞ Flash loan risk refers to the potential for malicious actors to exploit decentralized finance protocols using uncollateralized, instant loans. These risks arise when an attacker borrows a large amount of digital assets without collateral, manipulates market prices on other protocols within the same transaction, and then repays the loan, all before the transaction concludes. This rapid sequence of actions can lead to significant financial losses for affected protocols and their users. The exploit relies on faulty price oracles or logic vulnerabilities within smart contracts.
Context ∞ News about flash loan attacks regularly highlights the security vulnerabilities present in the nascent DeFi sector. These incidents underscore the critical need for rigorous smart contract auditing and robust security measures. The ongoing debate centers on developing more resilient oracle designs and implementing circuit breakers to mitigate the impact of such rapid market manipulations.
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