'Flash Loans' Now Being Used to Manipulate Protocol Votes

Oct 29, 2020 at 17:45 UTCUpdated Oct 29, 2020 at 18:48 UTC.Flash loans can be used for more than just siphoning funds out of poorly put-together decentralized finance 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.

Other DeFi degens have used flash loans to perform what is commonly known as an oracle attack.

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.

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.

He said the team had been waiting extra days to be whitelisted for using MakerDAO's pricing oracles and had become "Curious" after months of studying Maker's infrastructure to see if the flash loan was possible.

Now MakerDAO community members and the Maker Foundation are considering options for "Disincentivizing large MKR Holders from providing MKR Liquidity on Lending Platforms and AMM Platforms" until MakerDAO can blacklist votes using flash loans, according to the MakerDAO forum.

In lieu of comment, the Maker Foundation pointed CoinDesk to a community forum discussion from October 6 on limiting the use of flash loans for governance procedures.