// GLOSSARY -- DEFI

What is Flash Loan?

1 min read Updated

A flash loan is an uncollateralized loan that must be borrowed and repaid within a single blockchain transaction — enabling complex arbitrage, liquidation, and refinancing operations with zero capital.

WHY IT MATTERS

Flash loans are DeFi's most novel financial primitive. You borrow millions with no collateral — the only requirement is that you repay within the same transaction. If you can't repay, the entire transaction reverts as if nothing happened.

This enables: arbitrage (borrow, buy cheap on DEX A, sell expensive on DEX B, repay, keep profit), self-liquidation (borrow to repay your own debt and avoid liquidation penalty), and collateral swaps (change your collateral type without closing the position).

Flash loans also enable attacks: oracle manipulation, governance exploits, and complex DeFi exploits that require temporary large capital. They're a tool — powerful for both legitimate and malicious use.

FREQUENTLY ASKED QUESTIONS

How can a loan have no collateral?
The transaction is atomic — if repayment fails, everything reverts. The protocol never actually risks funds because the borrow and repay happen in the same transaction.
Are flash loans used for attacks?
Yes. Flash loan attacks manipulate prices, exploit governance, and drain vulnerable protocols. They provide attackers with temporary capital they wouldn't otherwise have.
Where can I get a flash loan?
Aave, dYdX, and Uniswap (flash swaps) offer flash loans. They require writing smart contracts or using tools like Furucombo that provide no-code flash loan interfaces.

FURTHER READING

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