A type of cryptocurrency loan that allows borrowers to borrow funds without providing any collateral or undergoing a credit check. Flash loans are typically offered through decentralized finance (DeFi) platforms and are executed using smart contracts on a blockchain. The loan is approved and disbursed almost instantly, and the borrower is required to repay the loan within the same transaction, which usually takes a few seconds to a few minutes to complete.
Flash loans are popular among cryptocurrency traders who want to take advantage of arbitrage opportunities or execute complex trading strategies. They can be used to borrow large amounts of cryptocurrency and execute trades quickly, without the need for liquidity or collateral. Flash loans can also be used for malicious purposes, such as exploiting vulnerabilities in DeFi platforms or manipulating the price of a particular cryptocurrency.
Cardano uses the EUTXO accounting model to prevent harm from flash loans.