Flash Loan Used to Influence Vote in Maker DeFi Protocol's Governance, Community Looks for Counter-Measures

Key highlights:

• A flash loan was used to pass a vote in MakerDAO's governance system
• $7 million worth of MKR was loaned, used to pass a vote and then immediately returned

Flash loans continue to cause headaches in DeFi

MakerDAO, the decentralized autonomous organization that oversees the Maker DeFi protocol, has warned about flash loans being used to influence the MakerDAO governance process. User »LongForWisdom«, who serves as a governance facilitator in MakerDAO, detailed a recent scenario in which $7 million worth of MKR was obtained in a flash loan and used to pass a vote.

Flash loans have been causing quite a lot of headaches to the DeFi ecosystem – while they certainly have legitimate use cases, they have been leveraged in multiple attacks agains DeFi protocols. In a flash loan, a user borrows a crypto asset and then returns it, all within a single Ethereum transaction.

DeFi protocol BProtocol wanted to access MakerDAO’s price oracle, but this requires a project to be white-listed first. They submitted a proposal to become white-listed, and later used $7 million worth of MKR obtained through a flash loan in order to get the vote through.

BProtocol has been transparent about their move

According to LongForWisdom, the Maker Foundation has been in contact with BProtocol, who have been »fully transparent« about their involvement in the flash loan. CoinDesk cites BProtocol CEO Ethan Katchka as saying that the project studied Maker’s infrastructure for months, and became interested if it was possible to pull off such a feat – as it turns out, it was very possible.

Even though their actions don’t seem to be malicious, it does highlight the need that the MakerDAO governance system needs to have safeguards set in place so that flash loans don’t have an unintended impact on the governance process:

»Their actions are a practical example for the community that flash loans can and may impact system governance and highlight that MKR market liquidity needs to be actively monitored.« 

One temporary measure that would help alleviate the governance risks associated with flash loans would be to urge large MKR holders to pull liquidity from automated market makers (AMMs) such as Uniswap. This would make it impossible to obtain a sufficient amount of MKR through a flash loan.