All You Need to Know About DeFi Flash Loans

Collateralized vs. uncollateralized loans, flash loan use cases, risks, and more!

Top DeFi Protocols

Table of Contents:
· Introduction
· Collateralized Loans in Centralized Finance (Banks)
· Collateralized Loans in Decentralized Finance (DeFi)
· Banks vs DeFi Collateralized Loans
· Flash Loans in Decentralized Finance
· Example of a Flash Loan
· Flash Loans Use Cases
  ∘ Arbitrage Trading
  ∘ Collateral Swapping
  ∘ Self Liquidation
· Flash Loans Execution Using Automated Tools
· Flash Loans Execution Using Smart Contracts
· DeFi Protocols Offering Flash Loans
· Flash Loans Risks
· Takeaways

Introduction

I will explore a new and super exciting concept in Decentralized Finance called Flash Loans in this post.

In a nutshell, flash loans are instant, uncollateralized, and (almost) risk-free loans offered by DeFi protocols like Aave and Uniswap. Thanks to this innovation, any user in the crypto space can ask for such loans, look for instantly profitable trading opportunities such as arbitrages, take some profits and pay back the loan to the lender.

Now let’s deep dive and see this with more details.

Collateralized Loans in Centralized Finance (Banks)