Flash Loans are special uncollateralised loans that allow the borrowing of an asset, as long as the borrowed amount (and a fee) is returned before the end of the transaction. There is no real world analogy to Flash Loans, so it requires some basic understanding of how state is managed within blocks in blockchains.

Flash Loans are an advanced concept aimed at developers. You must have a good understanding of Ethereum, programming, and smart contracts to take advantage of them.

Overview

For developers, a helpful mental model to consider when developing your solution:

1. Your contract calls the LendingPool contract, requesting a Flash Loan of a certain amounts of reserves using [flashLoan()](notion://www.notion.so/developers/the-core-protocol/lendingpool#flashloan).
2. After some sanity checks, the LendingPool transfers the requested amounts of the reserves to your contract, then calls executeOperation() on your contract (or another contract that you specify as the _receiver).
3. Your contract, now holding the flash loaned amounts, executes any arbitrary operation in its code.
   • If you are performing a 'traditional' flash loan, then when your code has finished, you transfer the flash loaned amounts of reserves back to the LendingPool.
     • The LendingPool contract updates the relevant details of the reserves and pulls the flash loaned amount + fee.
       • This is different from v1 flash loans, where the flash loaned amount needed to be pushed back to the LendingPool contract.
     • If the amount owing is not available (due to a lack of balance or approval), then the transaction is reverted.
   • If you are performing a flash loan to incur debt (see the mode parameter in the [flashLoan()](notion://www.notion.so/developers/the-core-protocol/lendingpool#flashloan) function), then a debt will be incurred.
4. All of the above happens in 1 transaction (hence in a single ethereum block).

Applications of Flash Loans

Aave Flash Loans are already used extensively with Aave v2 for swapping and/or migrating positions. Other examples in the wild include:

• Arbitrage between assets, without needing to have the principal amount to execute the arbitrage. Example: ArbitrageDAO.
• Swapping collateral of loan positions, without having to repay the debt of the loan positions. Example: Collateral Swap, DeFiSaver.
• Other examples and ideas are listed on our blog here and here.

Flash loan fee

The flash loan fee is currently 0.09%, changeable via the normal governance process. To get the current value, call FLASHLOAN_PREMIUM_TOTAL() on the LendingPool contract, e.g. number 1 here.

Step By Step Guide

TL;DR: A reference example flash loan contract can be found on Kovan etherscan and Github code examples repo.

1. Setting up