So, you might be asking yourself “Why would anyone borrow millions of dollars if they have to give it back in 10 seconds?” And the answer is profit…
This is what makes markets efficient. Here’s how arbitrage could work in crypto.. if Solana is $160 on KuCoin but it’s only $157 on Coinbase, depending on fees, you could profit off of this price discrepancy
Flash loans allow you to do this without ever actually buying Solana
A second reason for flash loans is collateral swaps.
This would make a traditional banker’s head spin. In order to borrow an asset you need collateral. Something worth money, that shows you’re good for your loan.
In regular finance collateral is fairly fixed. If you borrow $100,000 against your house you can’t easily decide tomorrow that you’d rather switch and borrow against the pile of gold you conveniently own instead.
You would need to go through a lengthy refinancing process and get the proper approvals. With a flash loan you are actually able to swap out your collateral on a loan for another asset all within a single 10 second transaction.
DISCLAIMER: Please be advised that nothing in this video shall be construed to be financial, legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor. All personal opinion is intended for general information purposes only.