Flash loans can have benefits, such as helping traders capitalize on price differences between cryptocurrencies on different exchanges. But flash loans have a dark side.
A hacker who robbed the decentralized stablecoin platform Beanstalk in April had a powerful tool: a $1 billion loan taken out with no collateral, no proof of income and no identity verification. The loan had to be repaid in less than a second, but that was all that was needed to steal tens of millions of dollars. The hacker used what is called a flash loan—a cheap, instant and anonymous form of financing based on cryptocurrencies.