A flash loan is a type of uncollateralized loan used in decentralized finance (DeFi), where users borrow and repay funds within the same blockchain transaction. If the repayment doesn’t happen instantly, the entire transaction is reversed. This “all-or-nothing” approach prevents loan defaults and enables powerful on-chain strategies without requiring upfront collateral.
Flash loans are popular for advanced use cases like arbitrage, liquidations, collateral swaps, or creating leveraged positions—all completed within a single transaction. However, they’ve also been used in high-profile DeFi exploits, not because of flaws in flash loans themselves, but due to vulnerabilities in the smart contracts they interact with. As the DeFi space grows, secure development and reliable price data (like from decentralized oracles) are key to mitigating these risks.
