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How Do Flash Loans Create Unique Arbitrage Opportunities in Decentralized Finance (DeFi)?

Flash loans offer instant, massive leverage for exploiting fleeting DeFi arbitrage opportunities.
Greeks.Live20.11.25

How Do Flash Loans Create Unique Arbitrage Opportunities in Decentralized Finance (DeFi)?

Flash loans create unique arbitrage opportunities in DeFi by allowing traders to borrow large amounts of capital without any upfront collateral, provided the loan is repaid within the same transaction. This enables traders to execute complex arbitrage strategies that would otherwise be impossible due to capital constraints.

For example, a trader could use a flash loan to buy a large amount of a cryptocurrency on one DEX and sell it on another at a higher price, repaying the loan and keeping the profit. Flash loans also facilitate intricate strategies like arbitraging between different lending protocols or exploiting price discrepancies in liquidity pools.

The instantaneous nature of flash loans allows traders to capitalize on fleeting arbitrage opportunities that exist for only a few seconds.

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