Venus Protocol Suffered a $THE Flash Loan Attack: The Real Operating Mechanism.

The essence of this incident is a typical flash loan combined with oracle manipulation attack.

1. Core Tool: What is a Flash Loan?

A flash loan is a special lending function provided by smart contracts. It allows users to borrow massive amounts of funds without providing any collateral.

The only limiting condition is: borrowing, utilizing funds, and repaying principal and interest must all be completed within the same blockchain transaction—the same block time, typically within only a few seconds.

If the transaction fails to repay the full amount with interest by the end of the transaction, the smart contract automatically rolls back and cancels the transaction, as if nothing ever happened.

This allows attackers to instantly mobilize tens of millions of dollars to manipulate the market with zero financial risk.

2. Attack Steps Breakdown

Attackers utilized this mechanism to complete a logically rigorous arbitrage closed loop:

Step One: Massive capital borrowing.

Attackers instantly borrow vast sums of funds through flash loan protocols—typically stablecoins or other highly liquid assets.

Step Two: Pump spot price to manipulate the market.

Attackers dump this massive sum directly into $THE liquidity pools on decentralized exchanges like PancakeSwap, purchasing large quantities of $THE .

Due to a sudden influx of massive buy orders in a short period, $THE 's spot price spikes dramatically in an instant.

Step Three: Oracle price distortion.

The Venus lending protocol relies on oracles to obtain market prices for various tokens.

When the oracle reads the instantaneous spike of $THE on the DEX and syncs it to Venus,

Venus's system determines that $THE has extremely high value at that moment.

Step Four: False high-premium collateral.

Attackers take advantage of the system's inflated pricing and deposit their $THE into Venus as collateral.

Since the collateral is recognized by the system as "high-value,"

Attackers smoothly borrow real hard assets like BTCB, CAKE, and BNB from Venus.

Step Five: Dump, repay, and exit.

After achieving their goal, attackers rapidly sell remaining $THE on exchanges to exchange back for funds to repay the flash loan principal and interest.

Since the entire process completes in an extremely short timeframe, attackers exit with the profits from borrowed BTC and BNB.

3. Consequences of the Attack

After attackers complete their sale and exit, $THE 's price instantly crashes back to its true level. This triggers a chain reaction:

Bad debt and losses: The collateral deposited by attackers remains in the Venus protocol but has now dramatically depreciated, while the high-value BTC and BNB have been borrowed away, causing the protocol to incur fund losses.

Large-scale liquidation: As prices collapse, the positions of all normal users who used as collateral within the Venus system experience their health factors instantly drop below the safety line, triggering the system's automatic large-scale forced liquidation, resulting in 14 million dollars in bad debt.