A flash loan is an uncollateralized DeFi loan that must be borrowed and repaid within a single blockchain transaction. If the loan isn't repaid by the transaction's end, the entire transaction reverts as if it never happened. This creates zero counterparty risk for lenders, they either receive their funds back with fees, or nothing happens. Flash loans are powerful financial primitives. They enable arbitrage across DEXs without requiring capital: borrow millions, exploit a price discrepancy, repay the loan, keep the profit, all within one transaction block. They enable collateral swaps, debt refinancing, and self-liquidation in lending protocols. They're also the most common tool in DeFi exploits. Attackers use flash loans to temporarily control massive amounts of capital, manipulate oracle prices, drain protocols that trust those prices, and repay the loan, stealing the difference. Flash loan attacks have drained hundreds of millions from DeFi protocols. The attacks reveal oracle vulnerabilities: protocols that rely on spot prices from a single DEX can be manipulated by anyone with enough capital for a single transaction. Flash loans made the cost of such attacks nearly zero.
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