DefineDeFiWeb3 Glossary

Flash Loan

A loan that must be borrowed and paid back in the same transaction - usually within seconds. No collateral needed if you pay it all back.

Example

Borrowing $10 million to take advantage of a price difference between two exchanges, profiting, and repaying - all in one transaction.

Related Terms

Advanced Concepts
Flash Loan Sequence DiagramShows how a flash loan borrows, uses, and repays funds in a single transactionFlash Loan: All in One TransactionSingle Atomic TransactionStartEnd (~12 sec)1BORROW$10M fromAave2EXECUTEArbitrage, liquidate,or swap collateral3PROFITKeep gains+$50K4REPAY$10M + fee(0.09%)✓ If Repaid SuccessfullyYou keep the profit!✗ If Repayment FailsEntire transaction revertsNo collateral needed because failure = automatic reversal. You only lose the gas fee.

⚙️How It Works

  1. 1

    Borrow

    Request any amount of tokens from a flash loan provider (like Aave)

  2. 2

    Execute

    Use the borrowed funds for arbitrage, liquidations, or collateral swaps

  3. 3

    Profit

    Complete your strategy and collect any profits

  4. 4

    Repay

    Return the full borrowed amount plus a small fee (typically 0.09%)

  5. 5

    Atomic

    If repayment fails, the ENTIRE transaction reverts as if nothing happened

⚠️Risks & Warnings

  • •Flash loans have been used in many DeFi exploits and hacks
  • •They can amplify governance attacks by providing temporary voting power
  • •Complex flash loan strategies can fail, wasting gas fees
  • •Oracle manipulation attacks often use flash loans for initial capital

❓Frequently Asked Questions

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