Flash Loan
An uncollateralized DeFi loan that must be borrowed and repaid within the same blockchain transaction.
What is Flash Loan?
A flash loan is a type of uncollateralized loan available in DeFi protocols — most notably Aave — that must be borrowed, used, and fully repaid (with a small fee) within a single blockchain transaction. If the loan is not repaid before the transaction ends, the entire transaction is reverted by the smart contract as if it never occurred, making flash loans risk-free for the lender. Because transactions on Ethereum execute atomically (all steps succeed or all steps fail), flash loans enable complex multi-step operations that would otherwise require significant upfront capital. Legitimate uses include arbitrage between DEXs, collateral swaps, and self-liquidation of positions. Flash loans have also been used in attacks: adversaries borrow large sums to temporarily manipulate prices in oracle-dependent protocols, draining funds before repaying the loan, all within one transaction. These 'flash loan attacks' have caused hundreds of millions of dollars in losses.
Example
An arbitrageur notices that ETH is priced at $2,950 on Uniswap and $3,010 on SushiSwap. Using a flash loan of $3,000,000 USDC, they buy ETH on Uniswap, sell it on SushiSwap at a higher price, repay the flash loan plus a 0.09% fee, and keep the remaining profit — all in one atomic transaction lasting a single block.
Source: Aave — Flash Loan Documentation