Definition
Flash loans are a DeFi innovation allowing anyone to borrow any amount without collateral, provided the loan is repaid within the same transaction. If repayment fails, the entire transaction reverts—the blockchain acts as if the loan never happened. Flash loans enable arbitrage, collateral swaps, and self-liquidation. They have also been used in sophisticated DeFi exploits.
lightbulb Example
A trader flash-borrows $5M USDC from Aave, uses it to arbitrage a price discrepancy between two DEXs (buying cheap on one, selling higher on the other), repays the $5M loan plus $500 fee, and pockets $3,000 profit—all in a single transaction.
verified_user Key Points
- Uncollateralized loan—borrowed and repaid in one transaction
- If not repaid, the entire transaction reverts
- Enables arbitrage without capital
- Has been used in DeFi exploits and attacks