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How “Priceless” Tokens can Limit Oracle Risk in DeFi Liquidations


UMA’s new smart contract swaps users for oracles to determine appropriate collateralization. It might be able to prevent future flash loan attacks.

  • UMA released a new smart contract design to generate priceless synthetic tokens.

  • The contracts are designed to remove the need for real-time price information during liquidation events.

  • Such contracts theoretically could have prevented recent flash loan attacks.

In the aftermath of February’s bZx flash loan attack, several DeFi companies have realized that relying too much on oracles—third party services or blockchains that provide information like the price of trading pairs—can lead to major losses if those oracles don’t update fast enough. The Universal Market Access Project (UMA) last week released a new type of DeFi contract designed to generate collateralized priceless synthetic tokens, which would reduce reliance on oracles to trigger liquidations. Multiple DeFi exploits have recently been exposed that rely on incorrect or manipulated data being transmitted from oracles. February’s bZx flash loan attack was performed by generating temporary price differentials to perform targeted arbitrage. In June 2019, another malfunctioning oracle generated a similar but less lucrative opportunity on the Synthetix platform. Read More...

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