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FlashFinancialGuide - How to Use DeFi's Flash Loans

Loans

Flash loans are one of DeFi’s most popular features, enabling crypto users to take out near-instant crypto loans without having to provide collateral in return. They’re also incredibly easy to use.

A flash loan is a new financial primitive that was first implemented by Aave, and quickly picked up by other trending Defi protocols such as dYdX. It allows users to borrow liquidity from an on-chain liquidity pool with no upfront collateral as long as the borrowed amount of liquidity, plus a small fee, is returned to the pool within the same transaction.

This innovative mechanism increases access to capital across a variety of use cases, while ensuring the continued solvency of the underlying on-chain liquidity pool. However, it can expose vulnerabilities in a protocol’s smart contracts and create attack vectors.

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