Flash Loan
An uncollateralized loan borrowed and repaid within a single transaction, enabling atomic arbitrage and liquidations.
Last Updated
2026-03-19
Related Concepts
What is Flash Loan?
A flash loan is a unique DeFi tool that allows a user to borrow a large amount of cryptocurrency with zero collateral, provided the funds are returned within the same blockchain transaction.
If the loan is not repaid by the end of the transaction, the entire operation is automatically rolled back.
How does Flash Loan work?
- A user's smart contract requests a loan from a flash loan provider (e.g., Aave).
- The provider transfers the funds to the user's contract.
- The user's contract performs a series of complex actions (like arbitrage across multiple exchanges).
- Before the transaction finishes, the user's contract must pay back the original loan plus a small fee.
- The entire sequence is "atomic"if the repayment fails, the EVM reverts all steps as if they never happened.
Why does Flash Loan matter?
Flash loans democratize access to massive capital, allowing anyone to execute strategies like arbitrage or debt refinancing that were previously only available to "whales."
However, they also enable sophisticated attacks, where malicious actors use huge borrowed capital to manipulate token prices.
Key features of Flash Loan
- Zero collateral required
- Borrow and repay in a single transaction
- High capital efficiency
- "Atomic" nature (success or total failure)
- Low cost (typically a
0.09%fee)
Examples of Flash Loan
An arbitrageur uses a flash loan to borrow $1,000,000 in DAI. They buy ETH on one exchange where it's cheaper and sell it on another where it's more expensive.
They repay the $1,000,000 plus fees and keep the remaining profit, all in under 12 seconds.