Thread by @azfnft

What's a Flash Loan attack and why a #CryptoPunk just sold for over $500 Million Dollars 👇👇

https://twitter.com/cryptopunksbot/status/1453872415591829504

1/ Flash Loan attacks are a crypto-specific attack where people can take advantage of market arbitrage within different exchanges w/o any leverage while risking only the gas fee of the transaction.

2/ The person behind the Flash Loan attack will code up a smart contract to borrow a lot of money from multiple sources and return said money within the same transaction. Thus there is no risk for either the borrower OR the seller.

3/ Flash Loans are legitimate uncollateralized loans that take advantage of smart contracts. This was first pioneered by Aave, one of the top lending protocols in DeFi and are the "first uncollateralized loan option in DeFi".

4/ So what happened here and where is the arbitrage opportunity within Flash Loans?

5/ Within a single transaction, the attacker will:

1. borrow a large amount of DAI (or any other crypto)
2. swap DAI for ETH at a favorable rate at exchange A
3. swap ETH for DAI at a favorable rate at exchange B
4. return the same large amount of DAI
5. arbitrage profit

6/ Furthermore, by borrowing a large amount of X crypto currency, the attacker can also take a large amount of supply from the market, resulting in an inflated price when selling the tokens back.

7/ Just yesterday, $136M was lost because of a Flash Loan Attack

8/ As more money floods into crypto, these attacks will become more and more common — this latest one just happened to be within the NFT community.

This may be a publicity stunt as well to garner attention to Punk #9998

9/ As you can tell from the transaction history, Punk #9998 has now moved back to the original wallet

10/ Have more questions? Drop them below and I'd be happy to answer them!

Here's the transaction: etherscan.io/tx/0x92488a00d…