DeFi & Yield

What is a flash loan in DeFi?

A flash loan is an uncollateralized DeFi loan that must be borrowed and repaid within a single blockchain transaction. If the borrower fails to return the funds plus fee before the transaction ends, the whole transaction reverts as if it never happened, so the lender carries no default risk. For example, a trader might borrow a large sum, use it to balance prices across two markets, and repay it instantly from the gain. Legitimate uses include arbitrage and refinancing positions, though the same mechanism can be misused. It exists only because transactions on a blockchain settle atomically.