Flash Loans

Dolomite offers free access to flash loans for any market that is not in Isolation Mode.

Flash Loans are a type of short-term, uncollateralized loan that allows users to borrow a significant amount of assets without the need for providing collateral upfront. Flash Loans are a unique feature of certain DeFi platforms and are made possible through the composability and programmability of smart contracts.

Here's how Flash Loans work:

  1. Borrowing and Repayment in a Single Transaction: A user can borrow a certain amount of assets, often referred to as the "loan principal," within a single blockchain transaction. This borrowed amount is typically much larger than the user's account balance.

  2. Usage Within a Single Transaction: The user is required to use the borrowed assets within the same transaction. This ensures that the assets are utilized for specific purposes, such as arbitrage, collateral swapping, or other sophisticated trading strategies.

  3. No Collateral Required: Flash Loans do not require the borrower to provide any collateral upfront. Instead, the borrower commits to returning the borrowed amount, along with a fee (interest), within the same transaction. If the borrower fails to repay the loan within the same transaction, the entire transaction is reverted, ensuring that the protocol's funds are not at risk.

  4. Arbitrage and Trading Opportunities: Flash Loans are commonly used for taking advantage of price discrepancies between different markets. Borrowers can quickly execute trades or other financial operations to exploit these opportunities and repay the loan, all within the same transaction.

  5. Conditional Execution: The transaction containing the Flash Loan is only executed if the conditions for borrowing and repayment are met. If the conditions are not met, the entire transaction is reversed, effectively canceling the loan and preventing any risk to the protocol.

Flash Loans offer a powerful tool for executing complex strategies in DeFi, allowing users to access a substantial amount of capital for a short period without the need for collateral. However, they also require careful planning and execution, as the borrowed funds must be used within the same transaction to ensure successful repayment.

How to execute a Flash Loan with Dolomite?

You can use any balance-changing Action, like Withdraw, Transfer, Buy, Sell, or Trade that pushes your balance negative and uncollateralized, as long as the account that executes the Operation is overcollateralized when the Operation finishes executing.

Thus, there is no specific interface to implement and there are no origination fees to be paid in order to execute a flash loan.

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