What Is the Relationship between a Flash Loan and Arbitrage in DeFi?

Flash loans are often used legitimately to facilitate risk-free arbitrage opportunities across different DEXs. An arbitrageur can borrow a token, buy it cheaply on one exchange, sell it for a higher price on another, and then repay the loan with the profit, all within one transaction.

This use is beneficial as it helps to quickly equalize prices across the market. The ability to borrow massive capital without collateral is key to making large-scale arbitrage feasible.