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What is a flash loan?
A flash loan is a loan with no collateral that must be borrowed and repaid, plus a fee, inside a single blockchain transaction. If it is not repaid by the end of that transaction, the whole transaction is reversed as if it never happened.
What it means for you
Flash loans let anyone briefly command very large sums. That money can be used to push a thin market's price within one transaction and mislead a contract that reads that price. If a protocol holding your deposit takes its prices from a single pool, check whether it guards against this.
A common mistake: “A flash loan is a kind of hack.”
In fact: It is a lending feature that settles inside one transaction. Attacks use the borrowed money to exploit a weakness elsewhere, such as a contract reading one manipulable price; the loan itself is repaid or nothing happens.
How it works
A flash loan works because a blockchain transaction is all-or-nothing. The borrower's contract asks the lending pool for funds; the pool sends them and calls back into that contract, which uses them, for example for an arbitrage or a liquidation, and must then let the pool pull back the amount plus a fee. If repayment is not available by the end of the transaction, everything reverts. In the documented design the fee starts at 0.05% and can be changed by governance. A flash loan needs a contract written to receive it; a plain wallet cannot take one.
An example
Say a token trades at 100 in one pool and 102 in another. A contract borrows 10,000, buys 100 tokens in the first pool, sells them in the second for about 10,200 and repays 10,005 including a 0.05% fee, all in one transaction, before price impact and pool fees. If the sale returns less than 10,005, the whole transaction reverts and only gas is spent.
Sources: Aave documentation: Flash loans, ethereum.org: Decentralized finance (DeFi) · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.