What are Flash Loans, and how are they easily attacked? (2025)

With the rapid development of decentralized finance (DeFi), Flash Loans, as an innovative lending measure, are gradually replacing traditional centralized finance. Flash Loans allow users to obtain funds without providing any collateral, and the entire borrowing and repayment process is completed in a single transaction on the blockchain. This article will detail the operational principles of Flash Loans, potential attack risks, and how to mitigate the occurrence of these attacks.

The operating principle of Flash Loans

The operation process of Flash Loans is as follows:

1. Initiate Request The user submits a request to any available lending protocol, specifying the amount of funds needed.
2. Approval and Fund Transfer If the user’s request is approved, the funds will be immediately transferred to the borrower’s wallet.
3. Using funds Borrowers can use the available funds for any investment, business, or other purposes.
4. Repay Loan Borrowers need to repay the loan within the agreed timeframe, usually no more than 24 hours.
5. Smart Contract Assurance If the loan is not repaid within the agreed timeframe, the smart contract will ensure that the transaction is cleared and completely canceled, thereby protecting the interests of the loan agreement.

A notable feature of Flash Loans is the use of smart contract technology, which ensures transaction transparency and contract execution. The application of smart contracts in Flash Loans helps to maintain checks and minimize the possibility of malicious attacks.

Flash Loans Attack

Flash loan attacks are a type of cryptocurrency theft where hackers borrow a large amount of digital currency using flash loans and then resell the currency on the open market for profit. These attacks are usually quick and simple, with attackers repeating the process multiple times before completing the attack and withdrawing, leaving no traces in between. Common examples of flash loan attacks include the DAO attack, bZx protocol attack, dForce attack, and MakerDAO attack.

Vulnerabilities of Flash Loans

The reasons why Flash Loans are vulnerable to attacks include:

1. Easy to execute The application process for Flash Loans is simple. Once the application is approved, it is easy to obtain a substantial amount of loan funds, which makes Flash Loans very susceptible to online fraud attacks.
2. Low cost Flash Loans are very cheap, and hackers can easily implement attack plans in just a few seconds to a few minutes, with no intermediaries involved, resulting in very low costs.
3. Low risk Flash loan attackers are rarely caught and can easily steal crypto funds from DeFi protocols, which makes the risk for attackers relatively low.
4. Unsecured Flash Loans do not require collateral, which increases the risk of borrowers not repaying the loan.
5. Developer’s oversight Due to the fact that blockchain technology is still in its development stage, developers may not be able to identify and resolve all potential flaws in advance, which provides attackers with an opportunity.

Measures to reduce Flash Loans attacks

To reduce the occurrence of Flash Loans attacks, the following measures can be taken:

1. Use decentralized markets Decentralized markets do not require exchanges to hold assets, thereby reducing the risk of being attacked.
2. Using a non-custodial wallet Non-custodial wallets ensure the security of user keys, allowing users to have complete control over their funds.
3. Use decentralized lending protocols Decentralized lending protocols are unlikely to be threatened because they do not hold user assets.
4. Keep an eye on the latest developments in the DeFi space. Plan and prepare in advance for any potential threats.
5. Verify the trustworthiness and reliability of relevant platforms Choose a reliable platform for trading.

Conclusion

Flash Loans are an excellent tool for driving the demand for secure and trustless protocols in the era of financial asset exchange. Although there are still some vulnerabilities at present, with the development of technology and the improvement of security measures, it is believed that Flash Loans can develop better in the future. Developers and users need to work together to reduce the occurrence of Flash Loan attacks, ensuring the security and stability of the DeFi space.