A flash loan is an unusual DeFi tool that lets someone borrow funds without any collateral, on one strict condition: the loan must be borrowed and repaid within the same single transaction. If it is not repaid by the end of that transaction, the whole thing is cancelled as if it never happened.
This is possible because blockchain transactions can bundle many steps together and either all succeed or all fail. Within that window, a borrower might use the funds for something like arbitrage across platforms, repaying the loan and keeping any difference, all in one atomic step.
Flash loans are a genuinely advanced and technical feature. They have legitimate uses, but they have also been involved in a number of DeFi exploits, where attackers combined them with other weaknesses. This entry explains the concept; it is firmly educational and not a guide to using them.
Frequently Asked Questions
How can a flash loan have no collateral?
Because it must be repaid within the same transaction. If repayment does not happen by the end of that transaction, the entire operation is cancelled as if it never occurred.
Why are flash loans linked to exploits?
Attackers have combined flash loans with other weaknesses in protocols to manipulate prices or drain funds within a single transaction, making them a factor in several DeFi exploits.
