Flash loan

Its guarantee is not collateral but EVM atomicity: either all operations succeed or all are undone. A contract borrows the loan, runs its logic, for example arbitrage, collateral swapping or refinancing, and returns the principal plus the fee in the same transaction. On Aave V3 the fee is 0.05 percent of the borrowed amount, a parameter initialized at deployment and modifiable by governance. The EIP-3156 standard defines a common interface for flash lenders and borrowers, with the onFlashLoan callback the borrower must validate; OpenZeppelin implements it in its ERC20FlashMint contract. Note that Aave uses its own interface rather than ERC-3156.

It matters for its legitimate uses: arbitrage across decentralized exchanges, collateral swapping without unwinding a position, debt refinancing or migration, and self-liquidations. As sound technical practice, a protocol's design should rely on robust oracle-based mark prices, since moving large capital uncollateralized for an instant can be used to stress oracles or shallow pools.

Real examples include Aave, the pioneer of flash loans, dYdX, and Uniswap's flash swaps as an analogous pool-level mechanism, plus the EIP-3156 standard and OpenZeppelin's ERC20FlashMint. A flash loan contrasts squarely with overcollateralization: it is the only DeFi loan without collateral, replaced by the atomicity guarantee, and it is frequently used to arbitrage liquidations in money markets and CDPs.