What are flash loans?

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A flash loan is a unique type of loan available in the decentralized finance (DeFi) space. Unlike traditional banking systems, flash loans do not require collateral or intermediaries.

With a flash loan, users can borrow funds instantly and without any upfront collateral. This is made possible through smart contracts, which are self-executing agreements written on blockchain platforms. These contracts monitor and enforce the terms and conditions of the loan.

Aave, one of the leading lending protocols in DeFi, pioneered the concept of flash loans. The loan amount a user can borrow depends on the available capital in the publicly funded platforms that offer flash loan services. The fees associated with flash loans are typically very low, such as 0.09% on Aave.

Overall, flash loans provide users with a quick and flexible way to access capital for various purposes within the decentralized financial ecosystem.