What is "Flash Loan"? How to use it to arbitrage $360,000 in 13 seconds?
Editor's Note: This article comes fromimToken（ID：imToken）, published with permission.
Editor's Note: This article comes from
, published with permission.
To put it simply, a manipulator lent 10,000 ETH from the decentralized digital currency derivatives trading platform dYdX through "Flash Loan", and used 5,500 ETH to lend 112 WBTC on Compound, and used 1,300 ETH to A 5 times ETH short order was opened on bZx (that is, 5637 ETH was used to exchange WBTC). Due to the limited convertible WBTC in the Uniswap pool, in order to continue to complete this exchange operation, the price of WBTC was pulled up. At the same time, the manipulator Then sold the 112 WBTC borrowed from Compound, obtained about 6800 ETH, and then returned the initial borrowed 10,000 ETH (6800+3200, note: 3200=4500-1300). In this process, the profit is equivalent to $360,000 in ETH.
And all of this is done in one block.
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What is "Flash Loan"
Flash loan is a new term in the DeFi ecosystem. We know that DeFi has many advantages, but at the same time there are structural flaws. DeFi needs to be over-collateralized, which means that the utilization rate of funds is very low. And "Flash Loan" allows borrowers to borrow money without collateral assets, which greatly improves the utilization rate of funds.
Flash loan is to complete the loan and repayment in one chain transaction without collateral. Since an on-chain transaction can include multiple operations, developers can add other on-chain operations between borrowing and repayment, making such borrowing more imaginative and meaningful.
However, the flash loan of the Aave protocol is mainly aimed at developers who build financial products and directly serves the developer community, allowing more developers to use flash loans to create refinancing tools or arbitrage tools to build financial products without capital. Thereby lowering the development threshold. But at the end of the day, the ultimate beneficiaries of these financial products are the end users.
Of course, you can also perform similar operations yourself based on the idea of flash loans. The premise is that you need to spend a few weeks learning Solidity and knowing how to code.
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Other Applications of Flash Loans
CDP (Valut) clearing application
Developers can build a CDP liquidation application based on flash loans. When the Maker system needs a collateral margin call, the app uses Flash Loans to automatically draw and repay loans in other lending protocols before liquidation occurs, avoiding paying liquidation fees of up to 13%, even if a 1% fee is required Developers can also reduce their losses by 12%.
Reduce transaction fees on Uniswap
The founder of DForce mentioned that with the help of the idea of Flash Loan, the transaction fee of Uniswap can be reduced from 0.3% to 0.05%, and the following operations can be completed in one transaction:
Use the ETH borrowed 25 million US dollars from the lending platform
Put 1500w USD ETH into MakerDAO and lend 1000w DAI
Use this 1000w DAI to Uniswap to provide liquidity for DAI
In this way, you only need to pay 0.05% of the transaction fee instead of 0.3% for the transaction in the fourth step (because you provide DAI liquidity and get 82% of the transaction fee rebate).
at last
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at last
For such a new thing, we have also seen many different views:
Aave founder: Flash loans can expand more DeFi use cases and diversify the types of DeFi products, because it greatly reduces the demand for funds and also reduces transaction costs.
Some people also said that flash loans are a nuclear bomb for DeFi, and the switch is placed in the square. Its degree of danger can be compared with PoS, which means that anyone can borrow the entire network Staking to carry out a 51% attack by paying interest.
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We don't know where Flash Loan will eventually go, but in it, we have at least seen the infinite possibilities of DeFi application scenarios and the active innovation of DeFi ecological developers.
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