Viewpoint | Re-understanding Flash Lending, Blockchain Has Arrived In A New Phase Of Crypto Finance

Foreword: In the past few days, the bZx incident has caused widespread concern in the crypto circle . The reason why hackers can "attack" successfully, in addition to manipulating prices, is the most effective use of flash loans. So what is a flash loan? Why a transaction can earn a profit of 360,000 US dollars in less than ten seconds, and only costs less than 9 US dollars in transaction costs. DeFi's innovation will only accelerate, and various new things will emerge in an endless stream in the coming year. The blockchain has reached a new stage of crypto finance. This article is from Trustnodes, translated by "Coli" of Blue Fox Notes.

Innovations in the financial sector are coming. Young bankers and technicians are allied to create a new world. This revolutionary development is becoming more real.

The latest development is flashloan, which is based on code operation. You can get a loan without any conditions, because your code can guarantee that it will be repaid within 15 seconds. (Blue Fox Note: 15 seconds is about the time of an Ethereum block, so it is also called flash loan)

Many things can happen in a transaction. Not just one transfer, there can be 50 transfers or operations in one transaction. Since a smart contract is a program, when you make a transaction, "initiate a call in a smart contract", it can perform multiple functions.

For flash loans, all operations must be completed in one transaction. Therefore, you must complete all steps in one transaction. Therefore, you have to program all the steps into a smart contract transaction: borrowing, performing operations, repayment.

If you don't pay back in the end, the transaction will fail and nothing will happen.

So, if the contract starts with you lending 10,000eth. If 10,000eth is not repaid in the end, the transaction will fail because the node will execute the transaction internally and revert the entire change if it fails.

Does it sound crazy? Except for performing all these operations and restoring, eth doesn't even need to move.

It's just … magic. This magic comes from this new invention of Turing's complete network, which has its own programming language and its own automatic "accounting".

These Accounting nodes look at the code. If 10,000eth is eventually repaid, they will execute and "publish" it, making it live code. Conversely, if the execution results of all of these open source code operations show that 10,000eth is outstanding, then they will not release it.

It sounds crazy. Because in many ways, it is a completely new field. However, you must know how to code to take advantage of it, because you must specify each step. However, after spending a few weeks on the Solidity tutorial, you can basically borrow this free money for arbitrage or any other opportunity you can think of, and it can be done in a set of steps.

For example, some people have earned $ 360,000 in just a few steps of a transaction, so this matter has attracted everyone's attention. (Blue Fox Note: bZx attack event referred to here, see the Blue Fox Note article " Inspiration of bZx Event " for details )

However, this is not the only invention in the field of DeFi. For example, Fulcrum is super liquid. Maybe as cool as something like this type of flash loan, this is a new name, but it is clear that dYdX smart contracts always allow for free flash loans. A new defi project, Aave, also runs a flash loan function. (Blue Fox Note: Aave is actually not new, it will be available in 2017, it is an old-fashioned lending project, but the brand name is changed)

For a slightly longer-term loan project, it will be remembered to convert CDP (Blue Fox Note: Mortgage Debt Position) into tokens, which are similar to promissory notes. Like something like dai, you have to deposit 35eth and get a dai worth around 15eth. The other 20 eths are mainly used as buffers and do not need to be used for other purposes. Therefore, you also have the opportunity to own these 20 eth-owned tokens, and now you can also use it.

Basically you are borrowing from different parties with the same collateral. This may cause problems, but since it is code-based and the Ethereum network understands everything, then the code "robot" should be able to perform various things in real time without creating things out of thin air, and to some extent It has no default value. However, depending on the price response, cascading may occur.

Therefore, according to investor Dan Eliezerdan's description of this new world, there may be other building blocks that have begun to take shape in the past two years, as follows:

"They are trying to build a variety of imaginable financial assets, services, and tools to ultimately serve people with open source software in everyone's mobile phone on the planet."