Building Flash Loan-Resistant Algorithmic Protocols

Flash loans enable attackers to temporarily skew DEX prices, tricking oracles like Chainlink into reporting invalid data for liquidations or minting.\n- Single-source oracles are vulnerable to synthetic price spikes on one venue.\n- Attackers can profit from instantaneous arbitrage between the protocol and the manipulated market.

Use a rolling average price over a significant period (e.g., 30 minutes) instead of the instantaneous spot price. This makes manipulation economically unfeasible.\n- Uniswap V3 provides native TWAP oracles.\n- Attackers must sustain the price deviation for the entire window, increasing cost exponentially.\n- The trade-off is latency for critical functions like liquidations.

Lending protocols check collateral ratios in a single block. A flash loan can deposit manipulated collateral, borrow assets, and exit before the next block's price update.\n- Creates risk-free insolvency.\n- Protocols like Aave and Compound historically relied on oracle frequency for security.

Enforce a cooldown period between borrowing and withdrawing borrowed assets, or between collateral deposit and borrowing.\n- MakerDAO uses a Debt Ceiling and Surplus Buffer for systemic limits.\n- Yield Protocol's fYTokens require a fixed-term maturity, preventing instant exit.\n- This introduces capital inefficiency as a deliberate security tax.

Protocols like Empty Set Dollar and Frax (early) used bonding curves mintable/redeemable in one transaction. Flash loans could mint at a lagged price and instantly arbitrage, causing death spirals.\n- Reflexivity between price and supply is exploited.\n- The attack is self-funding and amplifies volatility.

Decouple mint/redeem actions across multiple blocks or epochs, governed by vested stakeholders.\n- Frax V3 uses AMO (Algorithmic Market Operations) controllers that act non-atomically.\n- Olympus DAO's bonding system has a vesting period.\n- Aligns long-term protocol health with participant incentives, moving away from pure algorithmic reflexes.

Flash loans enable instant, massive capital to skew price feeds, breaking collateralization ratios and liquidations. This is the primary attack vector for protocols like Aave and Compound.

• Key Benefit: Robustness against $100M+ manipulation attempts.
• Key Benefit: Preserves protocol solvency during market volatility.

Replace spot prices with time-weighted averages (e.g., Uniswap V3 TWAP oracles). A flash loan cannot manipulate an average calculated over a 5-30 minute window without incurring massive slippage and risk.

• Key Benefit: Attack cost becomes economically prohibitive.
• Key Benefit: Creates a predictable, manipulation-resistant price feed.

An attacker borrows tokens, votes on a malicious proposal, and repays the loan—all in one block. This compromises protocols with low proposal timelocks or instant execution.

• Key Benefit: Ensures governance power reflects genuine, sticky capital.
• Key Benefit: Eliminates single-block takeover risk.

Implement a mechanism like Compound's COMP vote locking or a time-weighted voting schema. Voting power must be derived from tokens held for a minimum duration (e.g., 2-7 days), not just possessed at snapshot.

• Key Benefit: Flash-borrowed capital gets zero voting power.
• Key Benefit: Aligns voter incentives with long-term health.

Flash loans fund massive arbitrage that can drain concentrated liquidity pools in AMMs like Uniswap V3 by moving price ticks across the entire range in one transaction.

• Key Benefit: Protects LP capital from single-transaction extraction.
• Key Benefit: Maintains intended fee accrual for LPs.

Impose a maximum swap size per block as a percentage of pool liquidity. This caps the damage from any single transaction, forcing attackers to split capital across blocks and incurring real risk. Used by protocols like Trader Joe's Liquidity Book.

• Key Benefit: Limits max loss per block to a defined % (e.g., 1-5%).
• Key Benefit: Turns a flash attack into a slow, risky grind.