Unsecured loans in DeFi that must be borrowed and repaid within one blockchain transaction.
A Flash Loan is an unsecured loan in decentralized finance (DeFi) that must be borrowed and repaid within the same blockchain transaction. If the borrower fails to repay instantly, the entire transaction automatically reverts — meaning no collateral is ever required.
Flash loans enable advanced strategies that are impossible in traditional finance.
How Flash Loans Work
The user borrows a large amount of assets from a lending pool
They perform a sequence of actions (arbitrage, swaps, refinancing, liquidations)
They repay the loan plus fees within the same transaction
If any step fails, everything is rolled back as if it never happened
This atomic structure keeps lenders protected while enabling powerful financial operations.
Use Cases for Flash Loans
Arbitrage: Exploiting price differences across markets
Collateral swaps: Changing loan collateral without closing a position
Self-liquidation: Paying off loans more efficiently
DeFi refinancing: Moving debt between protocols
Advanced trading strategies: Without needing upfront capital
Flash loans democratize sophisticated financial tools once reserved for institutions.
Risks and Controversies
Attackers can use flash loans to manipulate low-liquidity pools
Poorly designed protocols may be vulnerable to flash-loan-powered exploits
Complex execution requires expert smart-contract knowledge
Although powerful, flash loans highlight the importance of secure DeFi architecture.
Summary
A flash loan is a DeFi loan borrowed and repaid within a single transaction, enabling advanced strategies without requiring collateral.
