What Is “Flash Loan” Functionality and How Is It Secured by Smart Contracts?

A flash loan is an uncollateralized loan that must be borrowed and repaid within the same atomic blockchain transaction. Smart contracts secure this functionality by ensuring that if the full repayment, plus fees, is not executed by the end of the transaction, the entire transaction is automatically reversed.

This programmed reversal eliminates the lender's risk of loss, enabling the uncollateralized nature of the loan. They are often used for arbitrage and refinancing.