Flash Loan
A flash loan is an uncollateralized loan that must be borrowed and repaid within the same transaction — if the borrower fails to repay by the transaction's end, the entire transaction reverts as if it never happened. Flash loans are enabled by smart contract atomicity and are primarily used for arbitrage (borrow capital to exploit a price discrepancy, repay with profit), liquidation cascades (borrow to close multiple undercollateralized positions), and protocol refinancing (move debt between protocols without upfront capital). Because flash loans eliminate the capital constraint, they democratize MEV extraction — any market participant, not just well-capitalized firms, can execute large arbitrage trades. However, flash loans have also been weaponized in oracle manipulation attacks where an attacker uses borrowed capital to distort the price feed of a lending protocol, enabling theft of deposited assets. Flash loan attacks have extracted billions from DeFi protocols, making oracle security a critical concern.