Flash Loan Attack Vector Analysis: Sky Lending

Target Protocol: Sky Lending (TVL: $6029.2M)

Sky Lending – Flash‑Loan Attack Vector Analysis

Technical Security & Audit Report

Prepared by: [Your Name], Senior DeFi Security Researcher

Date: 11 Oct 2026

1. Executive Summary

Sky Lending is a high‑throughput, cross‑chain lending protocol with $6.03 B TVL spread across Ethereum and several L2 roll‑ups. Its core architecture mirrors the “Aave‑style” pool model: users deposit assets, borrowers obtain loans against collateral, and a Flash‑Loan module enables permission‑less, atomic borrowing of any supported asset up to the pool’s liquidity.

Our analysis focuses exclusively on flash‑loan attack vectors – the most common source of rapid, large‑scale capital extraction in modern lending platforms. We examined the latest released contracts (v2.3.1), the associated price‑oracle suite (Chainlink + Sky‑Oracle), the liquidation engine, and the governance bridge that routes flash‑loan callbacks.

Key Findings

Overall, the aggregate risk score for flash‑loan‑related exploits is 7 / 10 (High). The protocol’s design is solid, but the identified gaps could enable a sophisticated attacker to extract tens to hundreds of millions of dollars in a single atomic transaction.

2. Identified Attack Vectors

2.1 Oracle Manipulation via Flash‑Loan‑Funded Swaps

Description

Sky Lending relies on a hybrid oracle: primary data from Chainlink aggregators, with a fallback to the proprietary Sky‑Oracle that aggregates on‑chain DEX prices. The fallback is triggered when the Chainlink feed is stale (> 30 seconds) or when a new asset pair is introduced. Sky‑Oracle updates its TWAP every 15 seconds using the last 5 minutes of Uniswap‑V3, SushiSwap, and Curve pools.

Attack Flow

1. Flash‑loan a large amount of the target asset (e.g., USDC) from Sky Lending.
2. Swap the borrowed amount on a low‑liquidity DEX pool that feeds Sky‑Oracle (e.g., a newly created USDC/XYZ pair).
3. The price impact pushes the on‑chain price upwards (or downwards) enough to make the attacker’s collateral appear over‑collateralized.
4. Borrow a second flash‑loan or a regular loan against the inflated collateral.
5. Reverse the swap (or let the price revert after the transaction) and repay the initial flash‑loan, keeping the borrowed assets.

Why it works – The oracle’s TWAP window is too short relative to the flash‑loan execution time, and the fallback does not enforce a minimum liquidity threshold. The attacker can therefore “price‑pump” the oracle within a single block.

2.2 Re‑entrancy in Liquidation Callback

Description

When a borrower’s health factor falls below 1, the Liquidate function calls an external onFlashLoan hook on the liquidator contract to allow custom logic (e.g., swapping collateral for the borrowed asset). The pool updates the borrower’s debt after the external call, leaving a window for re‑entrancy.

Attack Flow

1. Attacker triggers liquidation of a vulnerable position.
2. In the onFlashLoan callback, the attacker calls back into the pool’s borrow function, borrowing additional assets using the same collateral (still marked as “not yet liquidated”).
3. The pool’s internal accounting still reflects the original debt, allowing the attacker to extract extra funds before the health factor is finally updated.

Why it works – The pool does not use the Checks‑Effects‑Interactions (CEI) pattern for liquidation, nor does it employ a re‑entrancy guard (nonReentrant) around the external callback.

2.3 Missing Oracle for Newly Added Assets

Description

Sky Lending supports dynamic addition of new collateral assets via governance. When a new asset is added, the protocol creates a temporary oracle that pulls price data from the first available DEX pair. No fallback to a trusted off‑chain source exists during the first 24 hours.

Attack Flow

1. Attacker proposes a new token (e.g., a meme token) with a deliberately low‑liquidity pair on a DEX.
2. Using a flash‑loan, the attacker inflates the price of this token on the DEX, making the temporary oracle report an artificially high value.
3. The attacker deposits the token as collateral and immediately borrows a large amount of a stable asset.
4. The price reverts after the transaction, leaving the pool under‑collateralized.

Why it works – The temporary oracle lacks a price‑floor or liquidity‑check and trusts any on‑chain price feed for the first 24 hours.

2.4 Flash‑Loan Fee Bypass on L2 Bridges

Description

On L2 (Optimism, Arbitrum), the flash‑loan module uses the L2‑to‑L1 bridge to collect fees (msg.value is forwarded to the bridge). The bridge’s finalizeWithdrawal function does not verify that the fee amount matches the pool’s flashLoanFeeRate when the transaction originates from a contract with a receive() fallback.

Attack Flow

1. Attacker initiates a flash‑loan on L2, passing msg.value = 0.
2. The bridge’s finalizeWithdrawal is called with a zero‑fee payload, which the pool accepts as “paid”.
3. The attacker repeats the operation many times, accumulating fee‑free loans.

Why it works – The fee verification is performed after the bridge call, allowing a malicious contract to swallow the fee check.

2.5 Cross‑Chain Replay Attack

Description

Flash‑loan receipts are signed by the L2 sequencer and verified on L1 via a Merkle proof. The proof does not include a chain‑specific nonce, enabling an attacker to replay a valid L2 receipt on a different L2 roll‑up that shares the same contract address.

Attack Flow

1. Attacker executes a flash‑loan on Optimism, obtains a receipt.
2. The same receipt is submitted on Arbitrum, where the contract interprets it as a fresh loan.
3. The attacker extracts assets from both chains before the receipt is marked as “used”.

Why it works – The receipt validation lacks a per‑chain identifier.

2.6 DoS via Flash‑Loan Liquidity Lock

Description

The flash‑loan function locks the entire pool’s liquidity for the duration of the transaction (_reserve is decreased before the external call). An attacker can submit a series of maximal‑size flash‑loans in rapid succession, causing the pool to spend most of its gas on re‑entrancy checks and revert due to out‑of‑gas, effectively freezing borrowing for a period of time.

Impact – While not a direct loss of funds, it degrades user experience and can be combined with price‑oracle attacks to create a “price‑freeze” window.

3. Prioritized Technical Recommendations

solidity<br>require(oracleLiquidity >= MIN_LIQUIDITY, "Insufficient liquidity");<br>if (block.timestamp - lastUpdate < MIN_TWAP_WINDOW) revert();

|
| P1 | Apply the Checks‑Effects‑Interactions pattern and a nonReentrant guard to the liquidation flow, especially around the external onFlashLoan callback. | Eliminates re‑entrancy vector that lets attackers borrow extra assets during liquidation. |

solidity<br>function liquidate(...) external nonReentrant {<br> // Effects: update health factor, mark position as liquidated<br> // Interaction: call liquidator.onFlashLoan(...);<br>}

|
| P2 | Add explicit fee verification before bridge calls on L2 – require msg.value == flashLoanFeeRate * amount and reject zero‑fee calls. | Closes the fee‑bypass on L2 bridges. |

solidity<br>uint256 requiredFee = amount * flashLoanFeeRate / 1e18;<br>require(msg.value == requiredFee, "Incorrect flash loan fee");

|
| P2 | Include a chain‑specific nonce in flash‑loan receipt signatures (e.g., keccak256(chainId, receiptHash)). | Stops cross‑chain replay attacks. |

solidity<br>bytes32 receiptHash = keccak256(abi.encodePacked(chainId, loanId, borrower, amount, deadline));

|
| P3 | Rate‑limit flash‑loan requests per block – cap the total borrowed amount to a configurable percentage (e.g., 5 % of pool liquidity) per block. | Mitigates DoS via flash‑loan flooding and reduces the impact of large‑scale price manipulation. |

solidity<br>require(totalFlashLoanedInBlock + amount <= poolLiquidity * MAX_BLOCK_PERCENT / 100, "Flash loan cap exceeded");

|
| P3 | Audit and harden the governance process for adding new assets – require a multi‑sig vote, a minimum 48‑hour delay, and a mandatory price‑feed audit before activation. | Reduces risk of malicious low‑liquidity assets being introduced. | Governance contract update; add require(block.timestamp >= activationTime + 48h) before addAsset. |
| P4 | Implement a “price‑impact guard” – before any loan is approved, simulate the worst‑case price impact of a flash‑loan‑size swap on the underlying DEX and reject if impact > 0.5 %. | Provides an additional safety net against oracle manipulation without relying solely on liquidity thresholds. | Off‑chain simulation or on‑chain getAmountOut with slippage check. |
| P4 | Deploy a monitoring bot that watches for sudden spikes in flash‑loan volume, price deviations, and health‑factor drops, automatically pausing flash‑loans if anomalies exceed pre‑defined thresholds. | Early detection and rapid response to emerging attacks. | Use Chainlink Keepers or a custom off‑chain service with pauseFlashLoans() admin call. |

Implementation Timeline (Suggested)

4. Risk Score

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