Glossary · F
Flash Loan
An uncollateralised DeFi loan that must be borrowed and repaid within a single blockchain transaction. If not repaid, the entire transaction reverts as if it never occurred. Flash loans require no credit check or collateral — they are used for arbitrage, collateral swaps, and self-liquidation.
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How Flash Loan works in practice
A flash loan is borrowed and repaid inside one transaction. Because the whole transaction reverts if repayment fails, the lender takes no credit risk and no collateral is required. It is a genuinely novel primitive: uncollateralised borrowing made safe by atomicity rather than by trust.
Worked example
An arbitrageur borrows 1,000,000 USDC with no collateral, buys an asset cheaply on one DEX, sells it dearer on another, repays the 1,000,000 plus a fee of around 0.05%, and keeps the difference — all in a single transaction. If any step fails, the entire sequence reverts as though it never happened.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
Flash loans are frequently blamed for exploits they only amplified. They do not break protocols; they remove the capital requirement for attacking one that was already vulnerable to price manipulation. The vulnerability is the oracle or the accounting, not the loan.
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Flash Loan: common questions
- What is Flash Loan?
- An uncollateralised DeFi loan that must be borrowed and repaid within a single blockchain transaction. If not repaid, the entire transaction reverts as if it never occurred. Flash loans require no credit check or collateral — they are used for arbitrage, collateral swaps, and self-liquidation.
- How does Flash Loan work in practice?
- A flash loan is borrowed and repaid inside one transaction. Because the whole transaction reverts if repayment fails, the lender takes no credit risk and no collateral is required. It is a genuinely novel primitive: uncollateralised borrowing made safe by atomicity rather than by trust.
- Can you give an example of Flash Loan?
- An arbitrageur borrows 1,000,000 USDC with no collateral, buys an asset cheaply on one DEX, sells it dearer on another, repays the 1,000,000 plus a fee of around 0.05%, and keeps the difference — all in a single transaction. If any step fails, the entire sequence reverts as though it never happened.
- What do people get wrong about Flash Loan?
- Flash loans are frequently blamed for exploits they only amplified. They do not break protocols; they remove the capital requirement for attacking one that was already vulnerable to price manipulation. The vulnerability is the oracle or the accounting, not the loan.
- Where can I learn more about Flash Loan?
- Our full guide, What Is a Flash Loan?, covers Flash Loan in depth with worked scenarios and the risks involved. This glossary entry is the short definition.