*Paid Advertisement. Not financial advice. RugDoc is not responsible for the projects showcased here. DYOR and ape safu.
A flash loan is a loan in which the borrower does not have to provide collateral. Flash loans must be paid back within the same transaction block. Typically, flash loans consist of three steps:
Thanks to the smart contract, the lender always gets its assets back – if the borrower does not re-pay within the same transaction block, the smart contract reverses all transactions as if the loan was never taken out. This can be accomplished because the lender’s assets have always remained his: the smart contract allowed the borrower to use the assets, not own them. This explains why the borrower is not required to provide any collateral for the loan in the first place.
It may seem like a short time frame in which to pay back the loan (one transaction block) but the borrower can do a lot in this time. In general, flash loans are most commonly used for arbitrage opportunities. This means that an investor can take advantage of the price difference of a token between two or more decentralized exchanges and then pay back the borrowed amount to the lender, keeping the profit.
Save my name, email, and website in this browser for the next time I comment.