On the first day of National Day, I wish my friends who go out for fun a smooth trip, and I hope my friends who work hard at home will continue to get rich!
Let’s continue to supplement knowledge with Little Bear today and learn about blockchain!
What horrific hacking incidents have you guys heard about? Today we talk about flash loans!
1. bZx incident (February 2020)
- Used the price difference to conduct arbitrage attacks between Compound and Uniswap, making a profit of US$35 million.
2. Harvest Finance incident (October 2020)
- Attackers used flash loans to arbitrage between Curve/Uniswap and stole US$25 million.
3. PancakeBunny Incident (May 2021)
- The attacker exploited the price difference between PancakeSwap and BunnyToken to conduct arbitrage attacks, causing a loss of US$90 million.
4. Poly Network stolen (August 2021)
- Attackers exploited flash loan vulnerabilities to steal more than $600 million in crypto assets from the Poly Network cross-chain protocol.
5. Wormhole incident (February 2022)
- The attacker obtained funds through Solana’s flash loan and exploited the vulnerability of the cross-chain bridge Wormhole to steal more than $300 million in assets.
6. Rari Capital and Alpha Finance were attacked (February 2022)
- Attackers stole US$80 million and US$25 million in assets from the two platforms respectively.
The above attacks have fully exposed the risks of using flash loans for arbitrage or asset theft, and have also prompted many platforms to strengthen risk control and security measures.
So what is a flash loan?
Flash Loan #LearnwithCIAN
How do flash loans work?
1. Request a loan: Users request a loan from a platform that provides flash loans without collateral.
2. Utilize funds: Borrowed funds can be used for various purposes as long as they are within the same transaction block.
3. Repayment: The loan must be repaid within the same transaction block. If not repaid, the entire transaction will be reversed.
Platforms that provide flash loans: Aave, Balancer, Dydx
Use Cases:
1. Arbitrage: Borrow funds to profit from the price difference between the same token on different decentralized exchanges. For example: the price of X token on exchange is 10 yuan, and the price of token Y on exchange is 11 yuan. You can use flash loans to buy tokens at X, sell them at Y for profit, repay the loan, and profit from the difference.
2. Collateral swap: Users can switch the platform’s collateral without liquidating their loan positions. For example: if the value of your collateral is declining, you can use flash loans to borrow stable coins, exchange the falling assets for stable coins on DEX, and use stable coins to repay the flash loan to avoid potential liquidation.
3. Self-liquidation: Avoid liquidation by paying off debt quickly or switching collateral. For example: The loan is facing liquidation? You can use flash loans to borrow funds to repay the debt, sell other assets on DEX to repay the flash loan, and avoid liquidation fees in one transaction.
Advantage:
1. No collateral required: Users can borrow money without collateral, which is required for traditional loans.
2. Profit: Flash loans allow users to make profits through arbitrage and other methods.
3. Efficient and fast: transactions are executed quickly, providing users with instant liquidity.
Risk:
1. Smart contract risk: The platform that provides flash loans relies on smart contracts and may have loopholes.
2. Technical threshold: Effective use of flash loans requires an in-depth understanding of blockchain and smart contracts.
3. Regulatory uncertainty: There is a legal gray area in flash loans, and users may face regulatory risks.
The above knowledge is compiled from @CIAN_protocol defi school
Through the above learning, I hope to bring some help to the brothers. By accumulating a little bit every day, we will become stronger and stronger!
I wish you all continue to get rich!
