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What are Flash Loans and how do I use them?

Written by Nikola Jankovic
Updated 1 month ago

Flash Loans are a novel concept that allows anyone to borrow any amount of funds at the beginning of a transaction without the need to deposit any collateral, as long as these funds are paid it back before the same transaction is completed.

While Flash Loans have been used under the hood by DeFi Saver for a while, for enabling greater leverage management or refinancing tools, the Recipe Creator now let’s anyone utilize this power for their own specific use case. 

What you need to know:

  • For technical reasons, the flash borrow action must be the first one in the recipe
  • Two flash loan providers are currently available: Aave and dYdX. Aave offers a large selection of assets to loan, albeit with a small protocol fee (currently 0.09% of the borrowed amount), while dYdX offers loans without fees, but is limited to DAI, ETH and USDC. 
  • You can only have a single flash loan in a recipe. It is technically possible to loan more than one asset via Aave, but the UI does not currently support this option.

Use cases:

Generally speaking, flash loans can be used whenever you need a temporary loan that you know you’ll be able to pay back at the end of the transaction. Some of the potential use cases include:

  • Creating a fully leveraged position
  • Collateral or debt asset swaps
  • Closing a position
  • Creating a liquidity mining position
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