Flash Loan
A flash loan is an uncollateralized DeFi loan that must be borrowed and repaid within the same blockchain transaction.
A flash loan is a type of decentralized finance loan that lets someone borrow crypto without providing collateral, but only if the loan is repaid before the same blockchain transaction ends. If repayment, plus any fee, does not happen in that single transaction, the entire transaction is automatically reversed as if the loan never occurred. This is possible because smart contracts can bundle multiple steps together and enforce the outcome instantly.
Flash loans matter because they make large amounts of liquidity briefly available to developers and traders without needing upfront capital. They are commonly used for arbitrage, collateral swaps, refinancing positions, and testing market inefficiencies across DeFi protocols. For example, a trader might borrow a large amount, buy an asset cheaply on one decentralized exchange, sell it for more on another, repay the loan, and keep the difference, all in one transaction. They can also be used in exploits when poorly designed protocols can be manipulated within that same transaction, which is why flash loans are often discussed in DeFi security.
Other terms in DeFi
AMM
An automated market maker is a DeFi protocol that uses liquidity pools and algorithms to price and swap crypto assets without a traditional order book.
Aggregator
A DeFi service that searches multiple protocols to find better prices, routes, or yields for a user’s transaction.
DEX
A decentralized exchange is a crypto marketplace where users trade directly from their wallets using smart contracts instead of a central intermediary.
DeFi
A blockchain-based financial ecosystem that lets people lend, borrow, trade, and earn yield without traditional banks or brokers.