Preventive Protection of Decentralized Parametric Insurance Protocols against Oracle Attacks Using Flash Credits
Abstract
Preventive Protection of Decentralized Parametric Insurance Protocols against Oracle Attacks Using Flash Credits
Incoming article date: 14.11.2025Decentralized parametric insurance represents a promising innovation in the decentralized finance industry, offering automated and transparent payments based on verifiable external data. However, this dependence on external data supplied by oracles creates a critical vulnerability. The complexity of smart contracts can lead to unforeseen consequences, as demonstrated by attacks using flash credit: an instant loan that must be repaid as part of the same blockchain transaction. These attacks have become one of the most destructive vectors of economic attacks, allowing attackers to manipulate price oracles and initiate fraudulent insurance payments. Existing defense mechanisms, such as time-weighted average price oracles, are passive and not always sufficient to prevent such attacks. This article presents an original model of preventive protection. The author formalizes an attack on oracles using flash credit as a game-theoretic model with three participants: an attacker, a Protocol, and an Arbitrageur, where the latter is an automatic trading program implemented in a smart contract. Using a mathematical framework based on the invariant of an automatic market maker, the author determines the exact "window of vulnerability" - the economic conditions under which an attack is beneficial for an attacker and unprofitable for market arbitrageurs. Based on this analysis, the architecture of "SC-Guard" is proposed — a system of smart contracts with preventive protection against attacks using flash credit. Such a system monitors transactions not yet included in the blocks in real time for threats and dynamically changes economic incentives, subsidizing the Arbitrageur to neutralize attacks before they are executed. Instead of passively resisting manipulation, a system architecture is proposed that actively makes flash credit attacks economically unprofitable, providing a higher level of security for decentralized parametric insurance protocols.
Keywords: decentralized finance, parametric insurance, flash loans, oracle attacks, game theory, smart contract security, maximum extractable value, preemptive defense.