So apparently you can do this thing called a flash-loan where you can permissionlessly grant yourself a gigantic loan (millions of dollars). The catch is that you have to pay back the loan inside the same transaction.
Sounds stupid, what's the point of that?
Yes, indeed it does sound absolutely ridiculous that there would be any value in taking out a loan and paying it back in the same transaction. Yet here we are.
One, get out a flashloan for 10,000 eth (worth about $3 million) from trading platform DyDx.
Send half to Compound and half to bZx. With the Compound half borrow 112 WBTC. With the bZx half, short 112 WBTC. Now send this Compound 112 WBTC to Uniswap to lower price. Profit from the short and finally pay back that 10,000 eth loan.
Easy right? Except you have to do all of this in a single transaction because that’s how flash loans work:
This entire operation cost the hacker just $8.71 in transaction fees and it was possible only because of this new invention of flash loans.
This hacker borrowed millions to flash crash a market and short it at the same time... and paid back the loan in the same transaction. Sounds like something out of science fiction I tell ya. He generated $360,000 in a single transaction out of nothing for zero risk. That's absolutely insane.
Of course there are actual legitimate operations one could use this technology for. I imagine they are mostly (or all) related to arbitrage. Basically anyone who sees free money floating out there on the Ethereum network but don't have the funds to capitalize on it... now they do.
Flash loans... much wow.
Takes money to make money?
Not anymore.