I am quite new to flash loans and I do not fully understand it. I have been reading on flash loan attacks lately and notice oftentimes it involves a huge dump on Uniswap to skew the price of a coin. I am wondering if I can take out a flash loan, say 10000 ETH from AAVE, and dump all ...
Will be glad if someone could take out his/her precious time to explain how it works so I could add the knowledge to the little I know.
Thanks
In this example i'm going to use Uniswap & Sushiswap,
Lets say on Uniswap 1 ETH is 2800 DAI, but on Sushi 1 ETH is 2500 DAI
You borrow 2500 DAI from Uniswap using a flash loan. With this 2500 DAI you can go to Sushi and buy 1 ETH. Take that 1 ETH and sell it on Uniswap for 2800 DAI. Now you have 2800 DAI, You payback what you borrow and now you have 300 DAI in profit for you.
The useful thing about this is that you keep the prices on all the major Decentralized Exchanges almost similar by doing arbitrage.
That is what Flash-loans are supposed to be used for, But then their are people that use it to exploit projects or manipulate prices to earn more of a token through a loop hole.
Flash-loans are essential to a platform because it keeps prices stable all around the platform(ETH,BSC,..)
The flash-loan has to go through in one transaction or it will fail, If you don't pay the money back withing that same transaction it will not go through.
Because of this to do a flash-loan you need to use a smart contract where it will do what you programmed it to do and repay the loan in the same transaction
As its name says, a flash loan is an instantaneous loan paid back within the same transaction. It is similar to an overnight loan in traditional finance but with a crucial difference: repayment is required within the transaction and enforced by the smart contract.
If the borrower doesn't repay the capital, or the trade doesn’t make a profit, the conditions set out in the flash loan smart contract aren’t met, and the transaction is reversed—just like it never happened, with the funds returned to the lender. So—in theory, at least—there’s minimal risk for both parties.
Flash loans essentially have zero counterparty risk or duration risk. However, there is always smart contract risk. You can read:
https://blockworks.co/flash-loan-exploit-whips-cream-finance-for-130-million/
Flash loans allow a user to take advantage of arbitrage opportunities or to refinance loans without pledging collateral. This capability allows anyone in the world to have access to opportunities that typically require very large amounts of capital investment.
