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Flash Loans
Learn about flash loans - uncollateralized loans unique to DeFi.
5 Questions~3 min2,000 Bits1,000 XP
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Mastery
- 01
Flash Loans
Flash loans are uncollateralized loans unique to DeFi that must be borrowed and repaid within a single blockchain transaction. If the loan is not repaid, the entire transaction is reverted as if it never happened.
- 02
How Flash Loans Work
- Atomic Transactions: The borrow and repay must occur in the same transaction block. If any step fails, everything reverts.
- No Collateral Required: Because the loan is guaranteed to be repaid within one transaction, no collateral is needed.
- Smart Contract Logic: The borrower writes a smart contract that borrows, executes operations, and repays - all in one call.
- Flash Loan Fee: Protocols typically charge a small fee (e.g., 0.09% on Aave).
- 03
Legitimate Use Cases
- Arbitrage: Exploiting price differences across DEXs in a single transaction
- Collateral Swaps: Swapping collateral on a lending protocol without repaying the loan first
- Self-Liquidation: Liquidating your own position to avoid paying a liquidation penalty to others
- Debt Refinancing: Moving debt from one protocol to another with better rates
- 04
Flash Loan Attacks
Flash loans have been used maliciously to manipulate oracle prices, exploit protocol vulnerabilities, and drain liquidity pools. Major incidents include bZx ($8M, 2020), Pancake Bunny ($45M, 2021), and Euler Finance ($197M, 2023).
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5 Questions · 2,000 Bits + 1,000 XP
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