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FTA? > Such flash loans have beneficial uses, including help for traders trying to capitalize on price differences between cryptocurrencies on different exchan
by vmception 4y ago
FTA?
> Such flash loans have beneficial uses, including help for traders trying to capitalize on price differences between cryptocurrencies on different exchanges. In that sense, they are much like the financing that an investment bank might provide to an investment fund to make bets on different stocks or currencies.
This is their predominant use as well.
If you bid up the price of something on Sushiswap, that also trades on Uniswap, a flash loan will be deployed pretty much in the same block, pull all available capital necessary, and fix that price imbalance to its maximum potential.
Just a form of arbitrage.
Projects have to do system design that accounts for this. Beanstalk did not seem to account for the idea that the liquidity pool would have more than 50% of the BEAN supply eventually. But aside from that, having proposals passable in one block of deposit is the primary vector. Teams and communities like this model though because it basically comes down to "imagine how rich we would be if an attacker actually tried to buy all the tokens, I hope state actors get involved to really test that theory" because then it wouldn't matter if one block or many blocks was used if an actual organization was determined to pass something, this mentality is just not compatible with flash loans when all the liquidity is purchaseable already.
- downandout 4y agoFlash loans are useful for both arbitrage and loan liquidations. Every swap on Uniswap and its many forks on many chains is actually a "flash swap" under the hood - you can take the coins out and use them before the code checks that you have sent the tokens for the swap in to the contract. You don't even need a dedicated flash loan provider on a given chain to be able to use very large amounts of capital sitting in DEX pair contracts. There are other case-specific uses for them, but loan liquidations and arbs are the big ones.
- vmception 4y agoyes, are those swap forks cheaper than using AAVE?
- downandout 4y agoDepends on your use case. First, AAVE is on ETH, and most arbitrage profits are on other chains. For example, there aren't a lot of flash loan providers on BSC (Binance Smart Chain) with deep liquidity, so everyone just uses flash swaps. The most profitable chain for arbs is BSC (binance smart chain). If you're using the loan for DEX arbitrage, then there is no point in using a third party loan provider like AAVE. You have to pay swap fees regardless, and a flash swap is "free" in the sense that you only pay the swap fees for the coins involved, and you must pay them whether you send the coins to the contract first, or if you borrow them and pay them back at the end. So if you bring in outside money from a place like AAVE for a DEX arb, then whatever fees you are paying to AAVE are an extra, optional expense, since the swap fees must be paid regardless.
- vmception 4y agoyou can borrow from a DEX pool for a dex arb in a different pool or for the rest Of the complex transaction I’m asking if borrowing from the dex pools itself is cheaper than borrowing from AAVE
- downandout 4y agoThe answer is yes, for DEX arbs, since you have to trade in the pools anyway and must pay the resulting fees.