Flash Loan and its applications
Flash loans are unsecured loans with no credit limit in which the customer borrows funds and pays them back in the same transaction. They have made headlines in the crypto space for both good and bad reasons.
Flash loans overcome the limitations of CeFi and Defi loans as the use of smart contracts enables quick processing and approval of loans. Also, these loans are unsecured, which makes credit more accessible and gives everyone a chance to make money.
However, flash loans have become a primary attack for malicious actors exploiting the Defi protocol. There have been 19 major flash loan attacks so far this year.
A flash loan is an unsecured loan that you can get and must be paid off before the transaction is completed. Flash loans are used in arbitrage, wash trading, and one more I've forgotten. That's why it's called a flash loan because it's fast.
Offering unsecured loans to consumers is a terrible idea. Blockchain isn't as secure as it used to be. Most hackers aim to attack the flash loan protocol because flash loans are low risk, low cost, and have high rewards. They need to take some safety measures that do not affect the instant loan.
To me, this is an improvement in technology but then there will be a lot of safeguards to ensure that people don't lend in any way or the first flash loan is given as collateral.
Applying for a flash loan is not as easy as it sounds. There are certain conditions that you need to fulfill and qualify for before you are granted such loans.
There are three stages of a flash loan to be aware of.
The steps of a flash loan include,
(1) Recovery of debt,
(2) use for profit purposes;
(3) Payment of debt.
What is your impression of FlashLoan?
🤔 Do you agree that this is an innovative technology that has solved the problem of lending by allowing everyone unlimited access, making profits with them, and protecting themselves from the risks of liquidation? Gives.
OR
Do you think this is a flawed innovation that has benefited hackers and exploiters, who use it to attack smart contracts and extract funds from them?
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