Flash Loans
A flash loan enables you to borrow assets from a smart contract pool with no collateral.
Uncollateralised lending of crypto assets that enables profit making strategies via stacking multiple strategies into a single Ethereum transaction.
This is possible as transaction finality is dependent on block times which enables loans to be taken and paid back within the same block. The trade can be dropped if the transaction turns out to be unprofitable. In the case of a profitable trade, the protocol charges a fixed fee for the flash loan.
Flash loans are useful building blocks in DeFi as they can be used for things like arbitrage, swapping collateral and self-liquidation.
Principles
A flash loan contract defines the loan terms as well as strategy to implement. The flash loan contract will have to interact with a variety of other DeFi products to achieve profitability (loans, DEXes, aggregators). All flash loan strategies are grouped into a single transaction which is atomically processed by the network.
Benefits
- Instantaneous liquidity
- No collateral required with no default risks
- Stability due to instantaneous arbitrage
Protocols
- Aave
- Defi Saver
- Furucombo