Flash Loans are a DeFi tool available in UniLend that permits its users to easily access a loan without providing a collateral during the process. Users are permitted to borrow digital assets in a particular smart contract liquidity pool, taking out any risk aspect if they return the digital assets to the same pool before the transaction ends.
UniLend has created a profitable flash loan that benefits its ecosystem. At the moment, the Flash loans offered by UniLend are more gas-efficient and cost-effective compared to its counterparts. Flash loans tend to used for some DeFi strategies like arbitrage.
Perks Of Flash Loans
1. Little Barrier To Entrance
Flash loans do not request collateral before the user can borrow an amount from the designated smart contract pool.
Flash loans are different from DeFi’s common overcollateralozed loans that need collateral with a much more value than the amount that is being borrowed. With flash loans, this is not necessary. The barrier to entry is lowered in this case making it a useful tool to anyone that wants it.
2. It can be used in several DeFi activities
In some cases, flash loans can be utilized as a temporary market maker for decentralized limit order book exchanges. What this means is that the user can put a large limit order to get the bots that are looking at the smart contracts to move into buy positions briefly. It could also get the bots to enter the sell positions briefly by offering a large limit order to sell.
Sometimes, flash loans are used for arbitrage. They are important building blocks in the decentralized finance realm, as they can be used to build things like swapping collateral and self-liquidation.
3. Flash loans are frictionless. A reason they are frictionless is because it doesn’t care if you can afford the loan or not. Their collateral can be liquidated if they do not have the stipulated collateralization ratio.
4. It is trustless and uncollateralized loans that demand borrowing and repayment to happen in the same transaction. It is a major aspect of peer to peer lending, and it works with liquidations. With the coming of flash loans, the liquidation market has raked in hundreds of millions of dollars yearly. For a flash loan to work, the transaction processing, liquidation and settlement are carried out simultaneously in the transaction broadcast.
Read more about UniLend flash loans here: https://docs.unilend.finance/flash-loans
Originally published at https://www.publish0x.com.