Flash Loan
An uncollateralized DeFi loan that must be borrowed and repaid within the same transaction block, used for arbitrage and liquidations.
Flash Loan — A flash loan is an uncollateralized loan in DeFi that must be borrowed and repaid within a single blockchain transaction. If the borrower fails to repay the full amount plus fees before the transaction completes, the entire operation is automatically reversed, making the loan risk-free for the lender.
What Is a Flash Loan?
Flash loans exploit the atomic nature of blockchain transactions — either every step in a transaction succeeds, or the entire transaction reverts. A borrower can take millions of dollars from a lending pool, use the funds for arbitrage or liquidations, and repay the loan all within one transaction block.
Aave pioneered flash loans in 2020, and they have since become a foundational DeFi primitive available on multiple lending protocols across Ethereum, BNB Chain, and other EVM networks.
How Flash Loans Work
A flash loan executes in a single transaction with three steps: borrow funds from the lending pool, execute one or more DeFi operations (swaps, liquidations, collateral swaps), and repay the loan plus a small fee. If the repayment step fails, the entire transaction reverts as if nothing happened.
Flash loans require custom smart contract code or specialized interfaces to compose the multi-step transaction. The typical fee ranges from 0.05% to 0.09% of the borrowed amount.
Why Flash Loans Matter
Flash loans democratize access to capital-intensive DeFi strategies like arbitrage and liquidation. Anyone can execute a multi-million-dollar arbitrage opportunity without holding any capital upfront, leveling the playing field between retail users and whales.
Related Terms
Smart Contract
Self-executing code stored on a blockchain that automatically enforces the terms of an agreement without intermediaries.
Read definition DeFi & AMMArbitrage (DeFi)
The practice of exploiting price differences for the same asset across different DEXs or markets to earn a risk-free profit.
Read definition DeFi & AMMLiquidation (DeFi)
The automated forced sale of collateral when a borrower's health factor drops below a minimum threshold in a lending protocol.
Read definition DeFi & AMMSlippage
The difference between the expected price of a trade and the actual execution price, caused by price movement or low liquidity.
Read definitionFrequently Asked Questions
Common questions about Flash Loan in cryptocurrency and DeFi.
Flash loans themselves are neutral tools, but they have been used in exploits to manipulate oracle prices or drain vulnerable protocols. The vulnerability lies in the target protocol, not in the flash loan mechanism.
No. Flash loans require zero collateral because the loan is repaid within the same transaction. If repayment fails, the entire transaction reverts automatically.
You can borrow up to the total available liquidity in the lending pool, which can be hundreds of millions of dollars on major protocols like Aave.
Ready to put your knowledge into practice?
Start Boosting