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ETH · 4w

‘Flash Loans’ Have Made Their Way to Manipulating Protocol Elections

Flash loans can be used for more than just siphoning funds out of poorly put-together decentralized finance (DeFi) protocols.

That’s one lesson investors can learn from Israel-based startup BProtocol’s manipulation of flash loans to sway election results on DeFi legacy project MakerDAO earlier this week.

According to the MakerDAO community forum, on October 26, BProtocol borrowed 13,000 MKR tokens worth some $7 million through a flash loan from derivatives platform dYdX swapped for MKR on lending platform Aave. Voting with the flash-loaned MKR tokens enabled BProtocol to speed up desired election results for its project built on MakerDAO.

The “attack” was less an attack than yet another unexpected consequence of flash loans, a crypto-first product that made its debut in early 2020 with DeFi platform Aave.

Read more: Everything You Ever Wanted to Know About the DeFi ‘Flash Loan’ Attack Flash loans enable an in-the-know trader to amass mad leverage behind a trade by providing a temporary loan that must execute and settle in one block space. Here – and perhaps for the first time – BProtocol borrowed millions of MKR tokens to sway a protocol election and hand back the money in one block.

Other DeFi degens have used flash loans to perform what is commonly known as an oracle attack. In these situations a project’s funds are at risk due to poor project infrastructure – typically, shoddy pricing feeds. This happened last Sunday with $1 billion protocol Harvest Finance, which had prices for its stablecoin pools swayed by a flash loan, resulting in a haircut for Harvest traders.

The ability to use flash loans to exploit governance events is fairly new, however. Holders of MakerDAO’s governance token typically decide how the platform changes. 

But here BProtocol showed that if there are enough MKR tokens up for borrowing on DeFi markets, a flash loan can be used by just about anyone to sway Maker’s election results. All someone ne...

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