What is a flash loan?

A flash loan is a crypto loan without collateral that exists for only a single blockchain transaction. The borrower takes funds from a lending pool, uses them, and pays them back with a fee before the transaction ends. If repayment does not happen, the transaction fails and it is as if the loan never occurred.

How do flash loans work?

Flash loans rely on a property of blockchains like Ethereum: a transaction either completes fully or not at all. A borrower writes a smart contract that receives the loan, runs some actions, and returns the amount owed.

According to Aave's developer documentation, the lending pool sends the funds to the borrower's contract, calls that contract's code, and then pulls back the amount plus the fee. If the owed amount is not there, the transaction is reverted. Chainlink's education hub describes the same idea: a failed repayment rolls back the borrow and everything done afterward, so the borrower cannot default.

Because of this, flash loans are usually used by developers and bots, not by people clicking buttons in a wallet app.

What is an Aave flash loan, and what does it cost?

Aave is one of the best-known lending protocols that offers flash loans, and its docs call them "One Block Borrows." Aave V3 has two methods. One borrows from several assets at once, and the other borrows a single asset in a simpler, cheaper way.

Aave's docs say the fee started at 0.05% of the amount borrowed and can be changed by governance. The fee is shared between liquidity providers and the protocol treasury. As of October 2026, the current rate is readable on-chain from the protocol itself.

What are flash loans used for?

Chainlink lists three common uses:

• Arbitrage, where borrowed funds exploit a price gap for the same asset on two markets.
• Collateral swaps, where a user repays an existing loan and reopens it with different collateral in one step.
• Liquidations, where outside actors use borrowed funds to close undercollateralized loans and earn a reward.

These uses connect closely with crypto lending and borrowing and with trading on a decentralized exchange.

What is a flash loan attack?

A flash loan attack uses borrowed money to exploit a weakness in another protocol. The loan itself is not the flaw; it simply gives an attacker a large amount of capital for a few seconds.

A common pattern targets a protocol that prices assets using a single exchange. The attacker uses borrowed funds to push that price around, borrows too much against the distorted value, repays the flash loan, and keeps the difference, as Chainlink explains.

Governance can be a target too. In April 2022, according to Halborn, an attacker used a flash loan to gain about 79% of voting power in the Beanstalk protocol, passed a malicious proposal, drained about $181 million, and repaid the loan. You can read more in how crypto gets hacked.