Technical Concepts
Flash Loan
Uncollateralized loan repaid within the same transaction
Definition
A flash loan provides assets without upfront collateral on condition that principal and any fee are returned within the same transaction. If repayment fails, the transaction reverts; atomicity replaces a continuing credit exposure.
Example
Borrow 100,000 USDC with a hypothetical 0.05% fee. An arbitrage returning 100,200 USDC repays 100,050 and leaves 150 USDC before gas; a return below 100,050 makes the transaction revert.
How it works
The lender transfers assets and calls the borrower’s callback. The borrower runs swaps or refinancing steps, then returns or approves principal plus fee; the lender verifies repayment before completion.
Risks to Consider
- A competing arbitrage can remove profit before inclusion
- Unsafe callback permissions can expose your own funds
- A failed route still consumes gas despite atomic rollback
Common Questions
How is a flash loan different from a flash mint?
A flash loan usually draws existing liquidity. A flash mint temporarily creates the issuer’s own token and removes that principal before the transaction ends.