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Now bare with me here, I might have kinda misunderstood what a flashloan actually is. Internet tells me that it's a type of uncollaterized lending, where a smart contract takes money out of a pool, sends it to the borrower but the amount has to be paid back within the same block. If the borrower fails to pay back the loan within the same block the loan is revoked, it's as if it never happened. The nature of the blockchain as determeninistic state machine allows this to happen (state gets only really changed, once a new block is added to the blockchain, you can just say if (money_paid_back == true) {transaction == true}, and since every transaction depends on the previous ones, if one transaction in the chain does not happen, the following transactions don't happen either.)

Due to this construct everybody should now able to get any amount of money, at any point in time. Right? So... this in practice should also allow for risk free arbitrage, for everyone at any point in time. Y/N?

But it seems like this is not what flash loans are actually being used for, since every article I can find only talks about flash loan in the context or defi hacks/exploits, were they are being used to bombard other innocent projects with obscene amounts of money that then glitch out the internal contract logic, which then sometimes allows attackers to steal huge amounts of money.

So I don't really get what anyone get's out of offering flash loans in the first place, since it's either gonna be used to steal money, which makes the lender the middleman in a crime, or in the other case, they are technically still loosing money with every succesfull arbitrage.

I would imagine the blockchain to quickly become completly unusable as well, since every other block would get shit up with meme transactions, which would clog up the system entirely and make it impossible for every normal transaction to go through.

None of that actually happens of course, but I just don't understand why.

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You are only partially correct. Flash loans need to be paid back within the same transaction. And transactions don't typically depend on each other - if one transaction in a block reverts, the next transaction can very well succeed, since its state is most likely not dependent on the other transaction.

I also don't know what flash loans are used for "in reality". Mostly one just reads about different contract abuses. Your point about arbitrage is kinda true: flashloans reduce arbitrage risk, since you can just set the transaction to revert if the arbitrage fails for some reason. But you can only arbitrage assets inside the same blockchain with flash loans.

I'm not quite sure why Ethereum should become unusable with lots of flash loans. Why would users execute flash loands for "meme transactions".

Oh and I do believe flash loans are an awesome invention. And it's not the fault of the providers if someone uses the system for "wrong" things. And then again, one might say contract 'hacks' are not wrong - one might argue whether they are hacks at all, or just using the code in a way which was not anticipated.

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    I completely agree with you, I'd just add some : As the lender controls the transactions ( through its own smart contract ) it can ensure risk free loan, the gas is even paid by the user.. so why wouldn't they propose such service ? they theoretically cannot lose money on it. Second, if arbitrage becomes close to risk free ( as a user you are only risking the amout of gas * gas price... it's not much for a million dollar loan ) , it could bring more stability to the crypto market in a very short amount of time, just an idea though.
    – hroussille
    Oct 31, 2021 at 19:30
  • >Flash loans need to be paid back within the same transaction What's the definition of a transaction again? If I want to do anything useful with them, then surely i need at least two transactions? >But you can only arbitrage assets inside the blockchain Not really a problem, when there are a uncountable amount of ERC-20s and prices can still differ by a non trivial amount between different AMM even for popular coins >meme transaction If capital is free, then everything is prohibited. If risk free arbitrage is possible then that's what I'd imagine 99% of the transactions to be
    – as-Sirat
    Oct 31, 2021 at 20:01
  • *allowed lol i don't know why i wrote prohibited
    – as-Sirat
    Oct 31, 2021 at 20:15

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