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As Described by Emilio Frangella (Dev for Aave)
It’s the Epitome of “Programmable Money”

Flash loans are uncollateralized loans, allow you to take liquidity from the liquidity protocol. This could mean you can essentially take out as much liquidity as you want (depending on the framework set in place by the platform you’re working with) as long as the loan is repaid in addition to a percentage fee which is then returned to the liquidity pool.
That fee also helps to increase the value of the incentive token of that platform.
They also function much like atomic swaps in that, if the loan is not returned within the conditions specified, then the transaction will be reverted. This is what theoretically removes the risk from these loans. But there are still risks involved with the smart contract and if there are any loopholes that exist within it. In fact, this new type of advancement for how transactions can work within smart contracts has tested how different DeFi platforms themselves are organized. We’ve seen that several times now with people using these flash loans to exploit the loopholes of different DeFi platforms. If you’d like to learn more about that, check out my latest video which goes over just that.

Right now you have to know how to write smart contract instructions for short-term financial actions. One popular use of flash loans is to better capitalize on arbitrage situations. Basically, if you know how to read smart contract code, and write your own specific instructions for that smart contract, you can create a flash loan for yourself and essentially become a whale for a day, or at least for one block of the Ethereum blockchain which typically lasts about 15 seconds.

Exactly what is needed to engage in these flash loans is not quite clear to me, but it seems to be iterated time and again that it requires a high-level understanding of smart contracts and the ability to write your own smart contract.
Future advancements on this concept could see UX being developed so that code illiterate crypto enthusiasts can also partake in this as well. In fact, I did find one video tutorial on YouTube that shows how you can do this, which is provided for you down in the video description. But please be cautious with this new way to take out and utilize loans, it’s a brand new development and that in itself houses a lot of risk. A lot of unknown unknowns basically.

According to the economist Alex Kruger, this is the epitome of programmable money, and an extremely efficient way to utilize


13 replies
  1. christoph Alex
    christoph Alex says:

    can you set the terms on a flash loan, for example, you wanted to use to borrow funds to run an IEO and the IEO will be finished in 3 months is it possible for the smart contract loan to be issued that is what I can see this being very useful indeed? and can those loans be coded at a 0 collateral down for the first loan? if this is indeed possible. Cefi is Done when the masses find out

  2. Disturbed Peace
    Disturbed Peace says:

    Very interesting. Thank you for your work.
    Research is definitely key at this point as these powerful tools/concepts can be used for effective economic use cases, but also loosely controlled weaponized contracts funding all sorts of nasty operations and organizations. Tread carefully.

  3. kid pro quo
    kid pro quo says:

    It was just a matter of time before the banksters got involved. Now this is gonna spin out of control, people being ripped and not even nowing how. Im a newbie, but i think ill just sit on my bit and my ada and go back to building houses and "hodling" precious metals. Hope you and Toby have pm insights, ill miss ya if not

  4. Tracey Stark
    Tracey Stark says:

    I can’t wrap my head around flash loans. In the space of one block, a person uses a liquidity pool to do some crazy stuff and ends up with A LOT more money in 15 seconds?!?!? I need to watch about 200 more videos explaining this before it sticks. It’s kinda like quantum physics for money, right?


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