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What is a flash loan? Borrowing crypto for a few seconds with no collateral

By SendPay Business · · 2 min read

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A flash loan is a DeFi loan that has to be borrowed and paid back within a single blockchain transaction. Because the whole thing is undone if the money isn't returned, the lender needs no collateral, and the loan can be very large.

How it works

  • A smart contract borrows tokens from a lending pool.
  • In the same transaction it uses them, for example to swap between exchanges.
  • It repays the loan plus a small fee before the transaction ends.
  • If repayment fails, the whole transaction is reversed as if it never happened.
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What people use them for

Common uses are arbitrage between prices on different exchanges, swapping the collateral behind another loan, and paying off a loan to avoid liquidation. They need code, so they are a tool for developers rather than everyday users.

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Flash loan attacks

Attackers have used flash loans to borrow huge sums for a moment, push around the price in a thin market, and exploit apps that trusted that price. The loan itself isn't the flaw; the weakness is in the app that relied on an easily moved price.

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Where SendPay fits

SendPay platforms let customers buy, sell and hold crypto, held with regulated partners, alongside GBP, EUR and USD accounts, powered by licensed partners. SendPay doesn't offer trading tools, DeFi or lending.

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How it works

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SendPay Business is a technology company, not a bank. Accounts, cards and payments are powered by licensed partners.

Questions people ask

What does an Ethereum transaction cost?

Work out a gas fee from the gas used, the gas price and the ether price.

Gas fee calculator →
What is DeFi?

Financial apps built on blockchains rather than run by banks.

DeFi →
What is a smart contract?

Code on a blockchain that runs by itself when conditions are met.

Smart contracts →
What is MEV in crypto?

Profit taken by reordering or inserting transactions in a block.

MEV →

Read next

Spotted a mistake or something out of date? and we'll fix it. How our guides are made

This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.