How Does a Flash Loan Facilitate Triangular Arbitrage without Upfront Capital?

A flash loan allows a user to borrow an uncollateralized sum of capital, provided the loan is repaid within the same blockchain transaction block. An arbitrageur uses the borrowed capital to execute the three-step trade sequence (A to B, B to C, C back to A).

If the arbitrage is profitable, the profit is used to repay the loan plus a small fee, and the remainder is kept as profit. If the repayment fails, the entire transaction is reverted, protecting the lender.