Here is a breakdown of today's Venus Protocol $THE flash loan attack and its actual operating mechanism.

The essence of this event is a typical flash loan combined with oracle manipulation attack.

1. Core Tool: What is a Flash Loan?

A flash loan is a special lending function provided by smart contracts. It allows users to borrow massive amounts of funds without providing any collateral.

The only restriction is: borrowing, using the funds, and repaying principal plus interest must all be completed in the same blockchain transaction—the same block time, typically within just a few seconds.

If the full amount plus interest is not returned by the end of the transaction, the smart contract automatically rolls back and cancels the transaction, as if nothing ever happened.

This allows attackers to instantly mobilize tens of millions of dollars to manipulate the market with zero capital risk.

2. Attack Steps Breakdown

Attackers utilized this mechanism to execute a logically airtight arbitrage loop:

Step One: Massive Fund Borrowing.
The attacker instantly borrows massive amounts through the flash loan protocol—typically stablecoins or other highly liquid assets.

Step Two: Spot Price Manipulation.
The attacker dumps this massive sum directly into decentralized exchange liquidity pools like PancakeSwap, buying large amounts of $THE .

Due to the influx of massive buy orders in a short period, $THE 's spot price surges dramatically in an instant.

Step Three: Oracle Price Distortion.
The Venus lending protocol relies on oracles to obtain market prices for various tokens.

When the oracle reads $THE 's sudden price spike on the DEX and syncs it to Venus,
Venus's system judges $THE 's value to be extremely high.

Step Four: False High-Value Collateral.
The attacker takes advantage of the artificially inflated system price and deposits $THE into Venus as collateral.

Since the collateral is deemed "high-value" by the system,
the attacker smoothly borrows real hard assets like BTC, CAKE, and BNB from Venus.

Step Five: Dump, Repay, and Exit.
Once the goal is achieved, the attacker quickly dumps remaining $THE on exchanges to recover funds to repay the flash loan principal and interest.

Since the entire process completes in an extremely short timeframe, the attacker exits with profits from the borrowed BTC and BNB.

3. Consequences of the Attack

After the attacker completes the dump and exits, $THE 's price crashes instantly, returning to real levels. This triggered a chain reaction:

Bad Debt and Losses: The Venus protocol was left with the attacker's now severely depreciated $THE collateral, while the high-value BTC and BNB have been borrowed away, resulting in protocol losses.

Mass Liquidations: As $THE 's price collapsed, all normal user positions in the Venus system using as collateral
saw their health factors instantly fall below safe levels, triggering system-executed mass forced liquidations forming $14 million in bad debt.