Flash Loans and Governance: A Match Made in Chaos
In the world of decentralized finance (DeFi), it seems that innovation knows no bounds, especially when it comes to manipulating governance votes. A recent incident in the MakerDAO community has brought to light the potential pitfalls of flash loans being used for voting manipulation. A feature that could have been an ally to governance has turned into a rather unscrupulous weapon!
The Unlikely Culprit: BProtocol
Last Monday, a dramatic show unfolded when someone employed a flash loan to sway a governance proposal favorably. The culprit? None other than BProtocol, a tool purportedly aimed at enhancing the relationship between Maker’s debt liquidators and its users. Their proposal sought to allow access to Maker’s price oracle, giving a clear path to decentralized keepers just in case you were wondering who got the short end of the stick.
The Mechanics of Manipulation
So, how does this flash loan malarkey actually work? The loan facility from dYdX is designed to be unbacked—the cash is borrowed and must be repaid within the same transaction block. Talk about a high-stakes game of financial hopscotch! Community member Monetsupply pointed out that the governance contracts currently permit an instant lock, vote, and unlock of tokens all within a single block, turning the whole voting process into what some might call a financial circus.
Risk of Abuse
Flash loans being available translates to an enticing opportunity for anyone and everyone to influence governance without actually being a stakeholder. This means the pool of available MKR is a staggering $34 million sourced from various protocols, including Aave. Yikes! Just imagine the havoc one ill-intentioned party could wreak.
Taking Action: The Community’s Response
Recognizing the urgent threat flash loans pose, the Maker community has stepped up its game. They’ve implemented temporary measures to thwart future attempts at manipulation while they craft a longer-lasting solution. Initiatives include extending the delay time between the passing of proposals to a whopping 72 hours to allow the community to debate potentially malicious votes—good luck to anyone trying to pull fast ones in that timeframe!
Permanently Disabling Certain Features
No more playing with fire here! The community has also opted to disable certain circuit breakers that could let governance shut off oracles and liquidations, just in case some rogue actors thought they could exploit loopholes.
End of the Line? Not Quite!
The founder of BProtocol, in a rather lackluster attempt to soothe the storm, reassured everyone by saying they were just trying to “kickstart an internal technical discussion.” It remains to be seen how the community will evolve post-incident, as discussions about fixing these underlying issues have been ongoing for weeks. However, now the urgency is off the charts, thanks to this little snafu.
What Lies Ahead
This incident is far from over, and while no harm may have been intended, it’s evident that the MakerDAO community has some serious soul-searching to do. The question remains: can they successfully implement safeguards, or will we continue to watch the DeFi drama unfold?
