CBSE DeFi and Token Security 1

Question 1

What is a flash loan attack in the context of DeFi security?

Accepted Answer

Borrowing a large uncollateralized loan within a single transaction to manipulate prices and exploit protocols

Answer

Flash loans are repaid within one transaction; attackers use the temporary capital to manipulate oracle prices or drain protocol reserves.

Question 2

Which vulnerability type allows an attacker to repeatedly call a DeFi protocol's withdrawal function before the balance is updated?

Accepted Answer

Reentrancy

Answer

Reentrancy exploits occur when external contract calls are made before state changes, allowing recursive withdrawals that drain funds.

Question 3

What is price oracle manipulation in DeFi, and why is it dangerous?

Accepted Answer

Using flash loans or low-liquidity pools to distort on-chain price feeds, causing protocols to mis-price assets

Answer

Manipulated oracles cause lending protocols to accept inflated collateral or release excess funds, enabling massive theft in a single transaction.

Question 4

A token contract includes a hidden mint function accessible only to the deployer. What security risk does this represent?

Accepted Answer

A backdoor allowing unlimited token creation, enabling rug pulls and inflation attacks

Answer

Hidden privileged mint functions are a common rug pull vector, allowing the deployer to devalue existing holders by inflating supply at will.

Question 5

What is a 'sandwich attack' in DeFi trading?

Accepted Answer

Front-running a victim's transaction and back-running it to profit from the price impact

Answer

In a sandwich attack, the attacker places a buy before and a sell after the victim's trade, profiting from the slippage they create.

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