What is Lightning Loan? How to use it to arbitrage $ 360,000 in 13 seconds?
And all of this is done in one block.
What is "Flash Loan"
Lightning loan is a new term for DeFi ecology. We know that DeFi has many advantages, but it also has structural defects. DeFi requires excess pledge, which means that the utilization rate of funds is very low. The "lightning loan" allows borrowers to borrow without collateralizing assets, thereby greatly improving capital utilization.
Lightning loan is the completion of borrowing and repayment in a chain transaction without collateral. Because an on-chain transaction can include multiple operations, developers can add other on-chain operations between borrowing and repayment, making such borrowing a lot more imagination and also meaningful.
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The Aave protocol also provides the function of Lightning Loan. According to its official introduction, the function of Lightning Loan is to ensure that users do not need to mortgage to realize repayment, that is, if the funds are not returned, the transaction will be restored, that is, all operations previously performed are cancelled, thereby Ensure the security of agreements and funds.
However, the Lightning Loan of the Aave agreement is mainly targeted at developers who build financial products, and directly serves the developer community, so that more developers can use Lightning Loan to create refinancing tools or arbitrage tools to build financial products without funds. Thereby lowering the development threshold. But in the end, the ultimate beneficiaries of these financial products are end users.
Of course, you can also perform similar operations yourself based on the idea of Lightning Loan. The premise is that you need to spend several weeks learning Solidity and how to code.
Other applications of Lightning Loan
CDP (Valut) clearing application
Developers can build a CDP clearing application based on Lightning Loan. When the Maker system requires additional collateral deposit, this app will use Lightning Loan to automatically withdraw and repay loans in other lending agreements before liquidation occurs, thereby avoiding paying up to 13% of the settlement fee, even if 1% of the payment is required. Developers can also reduce losses by 12%.
Reduce Uniswap transaction fees
The founder of DForce mentioned that with the help of Flash Loan, the transaction fee of Uniswap can be reduced from 0.3% to 0.05%, and the following operations can be completed in one transaction:
- Use 2500w USD to borrow ETH from the lending platform
- 1500w USD ETH in MakerDAO to lend 1000w DAI
- Use this 1000w DAI to Uniswap to provide liquidity to DAI
- Perform any DAI related transactions you want in Uniswap
- Repayment of the first ETH loan
In this way, you only need to pay a fee of 0.05% instead of 0.3% for the transaction in the fourth step (because you provide DAI liquidity and get 82% commission rebate).
We have also seen many different views on such a new thing:
- Aave Founder: Lightning Loan can expand more DeFi use cases and diversify DeFi product types, because it greatly reduces the need for funds and also reduces transaction costs.
- Professor AVA Labs CEO Gun: Returning ETH in the same transaction can be borrowed without any collateral. Flash Loan's idea goes beyond what Wall Street can do. It seems that all this can only be done by smart contracts on the chain.
- It has also been said that Lightning Loan is a nuclear bomb for DeFi, and the switch is placed on the square. Its degree of danger is analogous to PoS, which is equivalent to anyone's interest in borrowing the entire network for 51% attacks.
We don't know where Flash Loan will eventually go, but in it, we have at least seen the infinite possibilities of DeFi application scenarios and the active innovation of DeFi ecological developers.
- LeftOfCenter-The chain news loan agreement bZx was manipulated to make "Lightning Loans" popular, and read the secret of the Lightning Loans that must be repaid in 13 seconds https://www.chainnews.com/articles/310002254120.htm
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