Skip to main content

Makina Finance: The $4.1M Flash-Loan Oracle Manipulation (January 2026)

On January 20, 2026, Makina Finance—a DeFi protocol utilizing Curve liquidity pools—was exploited for approximately $4.13 million (roughly 1,300 ETH). The attack utilized a classic yet highly sophisticated Flash-Loan-assisted Oracle Manipulation against the DUSD/USDC stablecoin pool.

Technical Overview​

Makina Finance's core logic relied on evaluating the "fair value" of assets within its liquidity pools to determine collateralization and withdrawal limits. To achieve this, it utilized a "spot price" oracle logic—calculating the ratio of assets within its primary Curve pool (DUSD/USDC).

The vulnerability was an over-reliance on the instantaneous state of the pool (spot price) rather than using a Time-Weighted Average Price (TWAP) or a resilient external oracle like Chainlink.

Exploit Mechanism: The 280M USDC Squeeze​

The attacker executed a surgical sequence of transactions within a single block (03:40:35 UTC):

  1. Flash Loan Accumulation: The attacker initiated a massive flash loan of $280 million USDC from a decentralized provider (likely Aave or Balancer).
  2. Pool Imbalance: Using the 280M USDC, the attacker flooded the Makina DUSD/USDC Curve pool. This sudden, massive influx of USDC relative to DUSD drastically skewed the pool's ratio.
  3. Oracle Distortion: Makina’s internal oracle, which evaluated token values based on the spot ratio of the Curve pool, was "misled" by the imbalance. The skewed ratio made DUSD appear significantly more valuable than its intended $1.00 peg.
  4. Value Extraction:
    • The attacker (or a contract they controlled) already held a position in the DUSD pool.
    • With the DUSD price artificially inflated by the massive USDC squeeze, the attacker withdrew funds or liquidated collateral based on the "new" fake valuation.
    • The protocol calculated that the attacker's DUSD holdings were worth nearly $5 million more than their actual market value.
  5. Repayment: The attacker withdrew the surplus value in ETH and USDC, repaid the original $280 million flash loan, and exited the transaction with a net profit of 1,299 ETH.

Why This Matters (The Oracle Resilience Gap)​

The Makina hack serves as a late-stage warning for modern DeFi protocols.

  • Flash Loan as Leverage: It demonstrates that the available depth of flash loans ($280M+) has outpaced the liquidity of individual pools, making spot-price oracles almost entirely obsolete for high-TVL protocols.
  • The MEV Factor: Immediate post-exploit analysis showed that MEV (Maximum Extractable Value) bots attempted to front-run or follow-up the exploit, further stressing the network’s stability during the attack window.

Mitigation Strategies​

  • Abolish Spot-Price Reliance: Protocols must transition away from using current pool ratios as a primary price source. TWAP (Time-Weighted Average Price) oracles are mandatory to ensure that momentary (single-block) imbalances cannot distort valuations.
  • Redundant External Oracles: Cross-verify internal pool data against resilient external feeds like Chainlink or Pyth. If the pool price deviates from the external market price by more than a set threshold (for example, 2%), the protocol should automatically enter a defensive pause.
  • Dynamic Liquidity Scaling: Implement withdraw/liquidate caps that scale with the pool's rolling average depth rather than its current state.
  • Flash Loan Guardrails: While difficult to block flash loans on-chain, protocols can implement a "Two-Block Commitment" for large withdrawals, where a user must signal an intent to withdraw in Block N and can only execute in Block N+1, effectively making intra-block flash loan attacks impossible.

Conclusion​

The $4.1M Makina Finance heist is a sobering reminder that the "Oracle Problem" remains the primary failure point for protocols that bridge internal liquidity with external valuations. As flash loan capacity continues to grow into the hundreds of millions, only protocols with rigorous TWAP enforcement and multi-oracle redundancy will survive the 2026 threat landscape.