Flash Loans: The Double-Edged Sword of DeFi That Nobody Talks About

A flash loan sounds like a hack, but it is completely legal in blockchain. It works like this: you borrow, use it, return it—all in a single transaction. If you can't repay, the transaction is canceled as if it never happened.

Why Is It So Different?

Normal loans require collateral (a house, a car). Flash loans? Zero collateral, zero paperwork, zero waiting time. Ethereum and protocols like Aave make it possible thanks to smart contracts.

Real example: A trader sees ETH at $1,800 on one DEX and at $1,805 on another. They take a flash loan of $10k, buy low, sell high, repay the loan + fee. Net profit: hundreds of dollars— all in milliseconds.

The Dark Side

Here is the problem: attackers also use it. The bZx attack of 2020 demonstrated this: someone exploited a flash loan to manipulate oracle prices and drain millions. Since then, there have been more similar attacks.

The Reality of the Game

Advantages:

• No guarantee required
• Ultra-fast transactions
• Accessible for devs with skills

Disadvantages:

• Security risks in poorly audited protocols
• Arbitration is already saturated (fierce competition)
• Requires serious technical expertise

In summary: flash loans revolutionize DeFi, but they also expose vulnerabilities. By 2024-2025, expect more audits and better price oracles. Those who understand this can win; those who don't may lose everything.