What Is the Primary Difference between a Flash Loan and a Traditional Margin Loan?
The primary difference is the repayment time and collateral requirement. A traditional margin loan requires collateral and is repaid over a long period.
A flash loan is an uncollateralized loan that must be borrowed and repaid within the same blockchain transaction. If the repayment is not completed by the end of the transaction, the entire transaction is reverted, meaning the funds were never truly lent, making it a risk-free loan for the lender.
Glossar
Flash Loan
Mechanism ⎊ A flash loan represents an uncollateralized loan executed entirely within a single blockchain transaction, enabling borrowers to access substantial capital for a very short duration, typically seconds.
Flash Loans
Mechanism ⎊ Flash loans represent uncollateralized lending protocols within decentralized finance, enabling users to borrow and repay funds within the same transaction block; this functionality is predicated on the deterministic nature of blockchain execution, eliminating credit risk for lenders.
Margin Loan
Leverage ⎊ A margin loan within cryptocurrency, options, and derivatives markets represents a borrowing facility extended by a broker to a trader, utilizing the trader’s existing assets as collateral to amplify potential returns.
Uncollateralized Loan
Condition ⎊ An uncollateralized loan, specifically a flash loan in decentralized finance, is issued under the strict condition that the borrowed capital must be repaid within the same atomic blockchain transaction.