What is Flash Loan?
Last reviewed 2026-05-03
A flash loan is an uncollateralized loan that must be borrowed and repaid in the same transaction, atomic on the EVM. Pioneered by Aave 2020. Used for arbitrage, collateral swaps, refinancing, liquidations — and also for many exploits, since attackers can borrow $100M+ for a single block.
How it works
A flash loan exploits transaction atomicity: on the EVM, a transaction either completes fully or reverts as if it never happened. The borrower deploys (or uses) a smart contract and calls the lending pool's flash-loan function, specifying the asset and amount.
The sequence inside one transaction: (1) the pool transfers the requested tokens to the borrower's contract; (2) the pool calls a callback function on that contract; (3) the callback runs arbitrary logic — swap on one DEX and sell on another for arbitrage, repay a loan to unlock collateral, or trigger a liquidation; (4) before the callback returns, the contract must transfer the principal plus a small fee (commonly a few basis points) back to the pool; (5) the pool checks its balance, and if repayment is short, the entire transaction reverts.
Because the revert unwinds every intermediate step, the pool takes no credit risk and needs no collateral — the loan literally cannot fail to be repaid without also cancelling itself. That is also why attackers use them: any strategy that is profitable within one block can be executed at enormous size with no capital.
Why it matters
Flash loans democratize capital — anyone can move $100M for one block. They power arbitrage, refinancing, and (unfortunately) most large DeFi exploits.
Real-world examples
Aave flash loans (Euler exploit recovery), Balancer flash loans, Morpho callback liquidity. Used for arbitrage, refis, and (sadly) exploits.
Related terms
Go deeper
Browse the complete crypto glossary to explore related terms and concepts.
Browse GlossaryFrequently asked questions
What is a flash loan?
A flash loan is an uncollateralized loan that must be borrowed and repaid in the same transaction, atomic on the EVM, pioneered by Aave in 2020.
How does a flash loan work?
A borrower's smart contract calls the lending pool's flash-loan function; the pool transfers tokens, runs a callback for arbitrary logic, and the contract must repay principal plus a small fee before the callback returns, or the entire transaction reverts.
Why are flash loans used in exploits?
Attackers use flash loans because any profitable strategy within one block can be executed at enormous size with no capital, allowing them to borrow $100M+ for a single block.