From nothing, $360,000 has gone into the pocket of someone in seven steps.
One, get out a flashloan for 10,000 eth (worth about $3 million) from trading platform DyDx.
Send half to Compound and half to bZx. With the Compound half borrow 112 WBTC. With the bZx half, short 112 WBTC. Now send this Compound 112 WBTC to Uniswap to lower price. Profit from the short and finally pay back that 10,000 eth loan.
Easy right? Except you have to do all of this in a single transaction because that’s how flash loans work:
This entire operation cost the hacker just $8.71 in transaction fees and it was possible only because of this new invention of flash loans.
We’re still trying to wrap our head around what flash loans are, but basically you can borrow an asset without putting down any collateral, so for free, but only if you pay it back in the same transaction.
You basically code a smart contract that tells the ethereum network you’re going to send the borrowed eth to one exchange to buy at a lower price and sell at a higher price on another exchange and since the exchanges are open source and the network knows everything they figure out whether what you say is true or not, and so you can flash borrow.
This flashloan thing sounds incredible because it is an actual loan without requiring credit etc, but a loan for a few seconds with the lender certain they’ll be paid back because of the contract conditions as the transaction just doesn’t happen, reverts, if the loans is not paid back.
That this can be done is a bit wow even if in this case it was used for that old trick of half long and half short because with this invention it is truly a meritocracy where even a very poor kid can take advantage of arbitrage opportunities without needing any upfront funds.
Update:
Copyrights Trustnodes.com
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007 February 16, 2020 at 4:52 am
IQ 300.AND A CROOK.
machv5 April 2, 2020 at 10:55 am
not if the person is a crook just what crime are they guilty of?
Luiso February 16, 2020 at 12:35 pm
“hacker”
wolf in sheep clothing February 16, 2020 at 3:25 pm
Stop calling the person a hacker, if the code allows for this then its fair game. Write better code.
machv5 April 2, 2020 at 10:53 am
I completely agree stop calling him a bad hacker in the context of labeling the actor to say he did something wrong. However to label him a hacker because he did something in a way that the original creators did not foresee yet did so within the rules that were set out I don’t agree with your statement because he is one, and more than technically. If anything the person is the textbook definition of one.
Anyway, potato ph0bobot. The guy/gal/other (wtf 3 genders now?) who profited from doing this did so legally but the way the press is labeling them is that they did something illegal. Which they didn’t I’d like to know if this “exploit” is still something that can be done in the future and if so where? Asking for a friend…
vitalik February 16, 2020 at 7:33 pm
every single defi loan or margin contract has collateral to back it up and liquidation levels that protect the lending protocol.
p.s. you don’t sound retarded, and it’s opposites day
Zinovsky February 16, 2020 at 8:03 pm
Hacker?????? Are you sure??? Someone his IQ is too high used the system legally, took a loan , traded, took profit and return the loan inside one transaction, is this for you a hacker habit!!!! Please back to school
Eric Angleton February 17, 2020 at 12:46 am
Please elaborate on exactly how this was a “Hack.” I’m really trying to look at that objectively, but it truly seems like it’s just trying to insert negative propaganda into this.
Martin E Juarez February 17, 2020 at 2:31 am
I am a retired teacher of 13 years and I am intrigued in this transaction using the Flashloan method. Can you please explain the process for me once again. This is my email,
Paul February 17, 2020 at 8:25 am
Lol
Jerry February 17, 2020 at 2:11 pm
Inside job. You can send me your opinion on my comment all you want. I don’t care.
DOMINGO February 19, 2020 at 10:05 pm
Looks like an arbitrage trade to me.
itsencrypted February 29, 2020 at 5:10 pm
“Now send this Compound 112 WBTC to Uniswap to lower price. “
If there’s not so much liquidity, then yes.. with 112 WBTC you will push the prices low.
But that’s not arbitrage to me, that’s market manipulation.