In recent times, the number of flash loan attacks on DeFi has become alarming. Many of the DeFi platforms have lost millions to these forms of attacks. Hackers manipulate the systems using flash loans and siphon millions of dollars to their addresses.
But according to Sergey Nazarov, the Chainlink co-founder, the community has only seen the simplest forms of flash loan attacks. Sergey made this revelation during a podcast on Decrypt Daily.
Based on what he said, DeFi projects are usually at a bottleneck on their price discovery mechanisms. The price oracle, which allows smart contracts to link to external data, is most times using one or more than one on-chain DEXs.
So, the attacks right now are still based on one price data provider and one exchange. However, there have been some instances when people utilize on-chain DEXs and on-chain exchange mechanisms to attain price for dApps.
However, an attacker needs a huge amount of capital to manipulate prices on one exchange. That’s why they’re relying heavily on flash loans to carry out their attacks. With such a mechanism, anyone can get the capital necessary for price manipulations.
Chainlink Co-Founder on Flash Loans
According to Chainlink Co-Founder, the future flash loans attacks will not be limited to manipulating one exchange and one price oracle. He believes that hackers will evolve to manipulating two to four exchanges where DeFi protocols depend on for price data.
Sergey believes that the attacks presently happening is easier for the wrongdoers to perpetrate. But the new levels can be prevented if exchanges expand their price data collection range. According to him, if these platforms do that, it will be hard for an attacker to manipulate an assets’ price unless if done globally.
In the podcast also, Sergey expressed his concern that more flash loan attacks will occur. But according to him, Chainlink’s architecture is completely resistant to such attacks as they don’t source data from one exchange but hundreds of different exchanges globally.
Sergey also pointed out that Chainlink had expressed concerns about flash loan attacks back in 2018, and unfortunately, the attacks are happening as the network predicted.