Flash loans refer to a special type of loan worth understanding, whereby users can borrow funds without providing collateral, as long as the loan is borrowed and repaid within a single blockchain transaction. 

If the borrower fails to repay the loan within the same transaction, the entire transaction is reverted, ensuring that no funds are lost. 

Flash loans have gained popularity as they enable traders to capitalize on arbitrage opportunities across multiple DeFi protocols without upfront capital. For instance, a trader can use a flash loan to borrow funds from one platform, purchase an asset on another where it’s undervalued, sell it on a third platform at a higher price, and repay the loan (all within a single transaction).

That being said, they’re also a popular method of attack, such as in the $197M Euler Finance exploit.

A reason for this is that the large transactions on-chain can cause instability for DeFi protocols, which can be exploited, such as distorting pricing by imbalancing liquidity pools on a decentralized exchange.

To learn more about Lending & Borrowing, visit:

• Lending & Borrowing Overview
• How Lending & Borrowing Works
• Interest Rates
• Liquidations
• Lending & Borrowing Key Terms
• Lending & Borrowing Key Considerations
• Lending & Borrowing Key Projects