A flash loan is an uncollateralised cryptocurrency loan that must be borrowed and fully repaid within a single blockchain transaction – if repayment fails, the entire transaction (including the loan itself) is atomically reversed as if it never happened. This unique property is possible because of blockchain atomic transaction model: either all steps succeed, or none do. Flash loans enable complex arbitrage, collateral swaps, and liquidation strategies without requiring upfront capital. Legitimate uses: arbitrage (borrow $1M, exploit a price difference across DEXs, repay $1M plus fee, profit the difference – all in one transaction); self-liquidation (use a flash loan to repay your own underwater loan, retrieve collateral, and close cleanly); collateral swaps (swap the collateral type on a DeFi loan without closing it). Flash loans have also been used for attacks: in 2020-21, numerous DeFi protocols were exploited using flash loans to manipulate oracle prices or governance votes. Aave charges 0.09% for flash loans; Uniswap v3 flash swaps charge the standard pool fee. Flash loans demonstrate the power of composable DeFi primitives.
Example: Example: Flash loan arbitrage: borrow 1,000,000 USDC from Aave (fee: $900). Buy ETH on Uniswap at $3,000. Sell ETH on Curve at $3,015 (arbitrage gap). Profit: $15,000 on the $15 price difference times 1,000 ETH. Repay 1,000,900 USDC to Aave. Net profit: $14,100 – all in one 12-second Ethereum transaction with zero starting capital required.
Learn more: Aave – Flash Loans
