Flash Loans: The Good, The Bad & The Wealthy

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LINKS FOR ADDITIONAL READING FOR THIS VIDEO & ALL INFO IN TEXT DOWN BELOW:

Suggested Videos:

How do Smart Contracts Work?: https://youtu.be/BlPZDtaRKL0
Why is DeFi the Hottest Topic in Crypto? https://youtu.be/mqdD_2rX4-0
Yield Farming, The Next Big Thing for Crypto Profits? https://youtu.be/tXFb7v1EDwY
DeFi Hacks of 2020, Have They Recovered? https://youtu.be/iXMZycExUVA
Who Will Start the Next BTC BullRun? https://youtu.be/QV8--MTME2Q
Flash Loans Coding with Aave Tutorial: https://www.youtube.com/watch?v=03jO9vbrXvY
Using Flash Loans w/o Coding: https://www.youtube.com/watch?v=4BZA_0xMagI

Additional Reading:

Aave Flash Loans Skyrocket in July: https://decrypt.co/37038/defi-flash-loans-skyrocket-100-million-per-day
Flash Loans Used in DeFi Hacks: https://elevenews.com/2020/07/30/zero-collateral-138-million-in-defi-flash-loans-issued-in-24-hours/
Flash Loans Attacks Explained: https://www.coindesk.com/the-flash-loan-attacks-explained-for-everybody
As Described by Emilio Frangella (Dev for Aave) https://twitter.com/The3D_/status/1182486591039655936
It’s the Epitome of “Programmable Money” https://bitcoinist.com/what-are-flash-loans-and-why-are-they-bullish-for-ethereum/

Flash loans are uncollateralized loans, allow you to take liquidity from the liquidity protocol. This could mean you can essentially take out as much liquidity as you want (depending on the framework set in place by the platform you’re working with) as long as the loan is repaid in addition to a percentage fee which is then returned to the liquidity pool.
That fee also helps to increase the value of the incentive token of that platform.
They also function much like atomic swaps in that, if the loan is not returned within the conditions specified, then the transaction will be reverted. This is what theoretically removes the risk from these loans. But there are still risks involved with the smart contract and if there are any loopholes that exist within it. In fact, this new type of advancement for how transactions can work within smart contracts has tested how different DeFi platforms themselves are organized. We’ve seen that several times now with people using these flash loans to exploit the loopholes of different DeFi platforms. If you’d like to learn more about that, check out my latest video which goes over just that.

Right now you have to know how to write smart contract instructions for short-term financial actions. One popular use of flash loans is to better capitalize on arbitrage situations. Basically, if you know how to read smart contract code, and write your own specific instructions for that smart contract, you can create a flash loan for yourself and essentially become a whale for a day, or at least for one block of the Ethereum blockchain which typically lasts about 15 seconds.

Exactly what is needed to engage in these flash loans is not quite clear to me, but it seems to be iterated time and again that it requires a high-level understanding of smart contracts and the ability to write your own smart contract.
Future advancements on this concept could see UX being developed so that code illiterate crypto enthusiasts can also partake in this as well. In fact, I did find one video tutorial on YouTube that shows how you can do this, which is provided for you down in the video description. But please be cautious with this new way to take out and utilize loans, it’s a brand new development and that in itself houses a lot of risk. A lot of unknown unknowns basically.

According to the economist Alex Kruger, this is the epitome of programmable money, and an extremely efficient way to utilize
Category
Crypto 101

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