Definition ∞ A flash loan is a type of uncollateralized loan that must be borrowed and repaid within a single transaction block on a blockchain. If the repayment does not occur within the same transaction, the entire operation is reverted. These loans are primarily utilized in decentralized finance (DeFi) for arbitrage, collateral swaps, and other complex trading strategies. They represent a unique financial instrument enabled by smart contract capabilities.
Context ∞ Flash loans are a subject of frequent discussion due to their powerful utility in DeFi and their potential for facilitating sophisticated market operations, including certain types of exploits. Current debates often focus on their role in decentralized arbitrage and their implications for market efficiency. Concerns are raised about their use in executing complex attacks that can drain liquidity pools or manipulate asset prices. Future developments may involve introducing circuit breakers or other mechanisms to mitigate risks associated with their rapid execution.
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